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Suppose the current level of output is 5000. If the elasticities of output with respect to capital and
labor are 0.3 and 0.7, respectively, a 10% increase in capital combined with a 5% increase in labor
and a 5% increase in productivity would increase the current level of output to

(a) 5015.
(b) 5325.
(c) 5575.
(d) 6000.

Respuesta :

Answer:

Option C is correct one. 5575

Explanation:

Percentage change in output due to percentage change in capital

= (0.3)*(10%) = 3% So, increase in output = (3%)*(5000) = 150

Percentage change in output due to percentage change in labour

= (0.7)*(5%) = 3.5% So, increase in output = (3.5%)*(5000) = 175

Increase in output due to increase in productivity

= (5%)*(5000) = 250

So, increased output = 5000 + 150 + 175 + 250 = 5575

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