Suppose the current level of output is 5000 and the elasticity of output with respect to capital is 0.4.A 10% increase in capital would increase the current level of output to
A)5020.
B)5050.
C)5200.
D)5500.

Question

Quizplus · Accepted Answer

Elasticity of output with respect to capital = 0.4Percentage change in output = Elasticity * Percentage change in capitalPercentage change in output = 0.4 * 10% = 4%New level of output = Current level of output + (Percentage change in output * Current level of output)New level of output = 5000 + (4% * 5000) = 5200

Suppose the Current Level of Output Is 5000 and the Elasticity