In the United States economy, there is a great deal of focus on technological advancements. These advances are said to increase worker productivity (like Zoom) or increase the productivity of capital (such as technology that makes the supply chain more efficient). What effect does advancement in technology have on the equilibrium real rental price and capital, assuming that the supply of capital is fixed? Explain, using the terms in the production function, how you know this to be true.

In the United States economy, there is a great deal of focus on technological advancements. These advances are said to increase worker productivity (like Zoom) or increase the productivity of capital (such as technology that makes the supply chain more efficient). What effect does advancement in technology have on the equilibrium real rental price and capital, assuming that the supply of capital is fixed? Explain, using the terms in the production function, how you know this to be true.

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: The Markets For The Factor Of Production

Section: Chapter Questions

Problem 9PA

See similar textbooks

Similar questions

Suppose that land is specific to corn, capital is specific to automobiles, labor is mobile between sectors, and payments are as follows: Sales revenue = 400; payments to labor = 100; payments to capital = 300 Corn:Sales revenue = 300; payments to labor = 250; payments to land = 50. Holding the price of automobiles constant, suppose the increase in the price of corn is 10% and the increase in the wage is 5%. What is the impact of this on the rental of land and the rental of capital?
Use a graph of labor input and its marginal product to argue that in the specific factors model(i.e. in the short run), an inflow of labor to a country reduces wages in the country. How are the rental rates of specific factors affected? see figure 5-2 in the slides. The rental rates of specific factors rise, because their marginal products rise due to an increase in labor intensity.
Suppose that a firm's production function is Cobb-Douglas (Y = A K\alpha L1 - \alpha) with parameter a \alpha = 0.4. a) What fractions of income do capital and labor receive? b) Suppose that number of the labor increases by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage? c) Suppose that a gift of capital from abroad raises the capital stock by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage? d) Suppose that a technological advance raises the value of the parameter A by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage?
David Ricardo ([1817] 1965) modified Smith’s model by introducing diminishing returns to land cultivation. Diminishing returns implies that as you apply more of a variable input (labor) to a fixed input (land), the productivity of each additional worker will eventually decline as long as technology isfixed. He claimed that land was of variable quality and finite. Thus, as an economy grows, population grows relative to land, and the productivity of the labor on the land will decline. According to Ricardo, the only way stagnation could be averted, at least temporarily, would be through the trade and imports of cheap food or wage goods. The essential doctrines of John Stuart Mill (1848) differed little, if at all, from those of Ricardo. He, like Smith, believed in the doctrine of laissez-faire , but he also recognized the possibility of modifying the system. He displayed a leaning to the socialist ideal, growing closer as his life advanced. He believed that we should sacrifice economic…
There are two factors of production, X and Y. They are being used to produce a fixed amount of output called A. If the amount of output, A is held constant, and the isoquants are convex, would the price of X going down always mean less of Y is used? Explain why or why not by explaining through the use of a graph.
Which of the following statements are true? A basic assumption of the theory of production is that: A firm cannot borrow money to finance its input expenditures. A firm can buy as much labor and capital as it desires in the long-run A firm can reduce the number of workers it uses, but it cannot adjust how much capital it uses in the short-run When the marginal product of labour starts falling, the firm must cease production a. II only b. II and III c. I, III and IV d. II, III and IV
Please refer to the table attached. The number of fish caught per week on a trawler is a function of the crew size assigned to operate the boat. Based on past data, consider the following production function identifying the relationship between output and labor input. You may assume that capital is fixed at 10 units. Answer all of the question. Calculate APL and MPL. Graph APL and MPL. Do they have the expected shape? On your graph, identify the three stages of production.
What is the marginal physical productivity (MPP) of the inputs given the function Q=18x21+2x1x2+2x22 ? Select one: a. MPPx1=36x1+2x1MPPx2=2x1+4x1 b. MPPx1=36x1+2x1MPPx2=2x2+4x2 c. MPPx1=36+2x2+2MPPx2=2x1+4x2 d. MPPx1=36x1+2x2MPPx2=2x1+4x2
Some economists believe that the US. economy as a whole can be modeled with the following production function, called the Cobb-Douglas production function: Y = AK¹/32/3 where Y is the amount of output K is the amount of capital, L is the amount of labor, and A is a parameter that measures the state of technology. For this production function, the marginal product of labor is MPL = (2/3) A(K/L)¹/³. Suppose that the price of output P is 2, A is 3, K is 1,000,000, and L is 1/100. The labor market is competitive, so labor is paid the value of its marginal product. a. Calculate the amount of output produced Y and the dollar value of output PY. b. Calculate the wage W and the real wage W/P. (Note: The wage is labor compensation measured in dollars, whereas the real wage is labor compensation measured in units of output)
3 Consider the production function of candles, with capital (K) and labour (L) as inputs: Qc = K0.1 L0.9. 3.1 Show that both additional labour and additional capital increase production at a decreasing rate by computing and referring to some of the second derivatives of Qe. 3.2 Now consider the production function of an additional product, electrical generators, de- fined by the following function: Qeg = K0.6 L0.4. Show, using the Jacobian derivative matrix of Qe and Qeg, how increasing capital by 10 units and decreasing labour by 5 units, would approximately change production of both goods. Start from an initial combination of K = 100 and L = 50.
3 Consider the production function of candles, with capital (K) and labour (L) as inputs: Qc = K0.1 L0.9. 3.1 Show that both additional labour and additional capital increase production at a decreasing rate by computing and referring to some of the second derivatives of Qe. 3.2 Now consider the production function of an additional product, electrical generators, de- fined by the following function: Qeg = K0.6 L0.4. Show, using the Jacobian derivative matrix of Qe and Qeg, how increasing capital by 10 units and decreasing labour by 5 units, would approximately change production of both goods. Start from an initial combination of K = 100 and L = 50. 3.3 Suppose that demand for capital and labour are in turn determined by the interest rate 125. Use the Jacobian r and wages paid to workers w, as follows: K = derivative matrix of Qe and Qeg to calculate how production changes in response to an and L = 10r3 ar increase in interest rates: when r = 2 and w = 1000. Or
Assume instead that pharmacists and robots dispense prescriptions according to the following production function: Y = 10*KO.8L0.2 where Y is the number of prescriptions dispensed; L is the number pharmacist hours, and K is the number of robot hours. In addition, $10 worth of materials is used for each prescription. a. What is this type of production function called, and what are we assuming about the relationship between robots and pharmacists by using this production function? b. Derive the cost - minimizing demands for K and L as a function of output, the wage rate and the rental rate of capital. c. Use these results to derive the total cost function: costs as a function of y, r, w, and the $10 materials cost. d. Pharmacists earn $32 per hour. The rental rate for robots is $64 per hour. What are total costs as a function of Y? e. Does this technology exhibit decreasing, constant, or increasing returns to scale?f. The pharmacy plans to produce 40,000 prescriptions per week. At the…