A country has an aggregate production function of the form Y = A × K¹/³ × H²/³,where Y denotes total output,A denotes the level of technology,K denotes the physical capital stock,and H denotes the efficiency units of production.Which of the following is likely to happen if the physical capital stock and the efficiency units of labor available to the country increase by 10 percent over a span of 5 years,while the state of technology used in the country remains the same?
A) Output will increase by 5 percent.
B) Output will increase by 10 percent.
C) Output will increase by 1 percent.
D) Output will double.

Question

Quizplus · Accepted Answer

According to the given production function, a 10 percent increase in K^(1/3) and H^(2/3) will result in a 10 percent increase in output (Y) since 1.1^(1/3) * 1.1^(2/3) = 1.1. Technology (A) remaining constant will not affect the output in this case. Therefore, output will increase by 10 percent.

A Country Has an Aggregate Production Function of the Form