10. Indianaland, a country, has production function F(K,L) = 4K^1/2L^1/2. Curren

Question

10. Indianaland, a country, has production function F(K,L) = 4K^1/2L^1/2. Currently, K = 4 million; L = 1 million; L=50000 ; = 50%; delta = 10%. Variables represent what they typically represent in Chapter 4. a. Find the population growth rate in continuous time - denoted n in this class. b. Is the economy in steady state? Show why or why not. Find deltak and k^ss (per-worker values). c. Now assume that right now, 50,000 immigrants arrive on shore. Model this as an instantaneous increase in L, and assume that these migrants have the same n. How will this change kSS?

Explanation / Answer

Answer:3

At 11000 units level:

Total variable cost = Material cost + wages cost

=(11000 units * $3) + (11000 units * $30 /10) = $66000

Total Fixed cost   = $23000 +$15000 = $38000

Hence

Total Cost per unit = (66000 + 38000) / 11000 = $9.45 Per unit

Selling price is $9.50 per unit

So now it shall be profitable because selling price is more than the total cost per unit.

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