Suppose the current level of output is 5000.If the elasticities of output with respect to capital and labour are 0.3 and 0.7 respectively,a 10% increase in capital combined with a 5% increase in labour and a 5% increase in productivity would increase the current level of output to
A)5015.
B)5325.
C)5575.
D)6000.

Question

Quizplus · Accepted Answer

The percentage increase in output is calculated as: (0.3 * 10%) + (0.7 * 5%) + 5% = 3% + 3.5% + 5% = 11.5%. Therefore, the new output level is 5000 * (1 + 0.115) = 5575.

Suppose the Current Level of Output Is 5000