Scenario: Assume the following aggregate production functions for two countries, A and B, respectively.
YA=A KA¹/² ᴴA¹/²
ʸB=A KB²/³ ᴴB¹/³
-Refer to the scenario above.Country B's aggregate production function is consistent with the fact that ________.
A) empirically roughly one third of national income goes to labor and two thirds of national income go to capital
B) increasing capital and labor by 10 percent each would increase output by 10 percent
C) increasing capital and labor by 10 percent each would increase output by 20 percent
D) empirically returns to capital are typically greater

Question

Quizplus · Accepted Answer

Country B's aggregate production function $Y_B = A K_B^{2/3} H_B^{1/3}$ implies that the output elasticity with respect to capital is $2/3$ and with respect to labor (human capital, $H_B$) is $1/3$. This matches the empirical observation that about one third of national income goes to labor and two thirds to capital.

Scenario: Assume the Following Aggregate Production Functions for Two Countries