If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y =
50K0.5L0.5, where K = 100 and L = 100, then C equals:
A)1,000.
B)2,500.
C)3,000.
D)5,000.

Question

Quizplus · Accepted Answer

First, calculate Y using the production function: Y = 50(100)^0.5(100)^0.5 = 50(10)(10) = 5,000. Then, substitute Y into the consumption function: C = 500 + 0.5(5,000) = 500 + 2,500 = 3,000.

If the Consumption Function Is Given by the Equation C