An economy has a per-capita production function y= AK^a h^1-a, Where A and are f

Question

An economy has a per-capita production function y= AK^a h^1-a, Where A and are fixed parameters, y is per-worker output, k It is the capital-labor ratio, and h It is the human capital per worker, a measure of the skills and training of the average worker. The production implies that, for a given capital-labor ratio, increases in average human capital raise output per worker. The economy's saving rate is s, And all saving is used to create physical capital, which depreciates at rate d. Workers acquire skills on the job by working with capital; the more capital with which they have to work, the more skills they acquire. We capture this idea byassuming that human capital per worker is always proportional to the amount of capital per worker, or h=Bk, Where B It is a fixed parameter. Find the long-run growth of physical capital, human capital, and output in this economy.

Explanation / Answer

In this case, we need more physical capital then human capital so that we can enhance & enrich the productivity of human capital. If, the economy will go in this way then more capital formation is possible in the long run & out put will increase in the economy.

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