Suppose an economy's production is defined by the following neoclassical function: Y=K 1/5L 4/5. What fraction...

Suppose an economy's production is defined by the following neoclassical function: Y=K ^1/5L ^4/5. What fraction of GDP will accrue to owners of capital yearly?

50%

20%

80%

100%

Expert Solution

As we can see that production function is Y=K ^1/5L ^4/5.

So this means that there are two inputs in the production function that is Labor and Capital .

So , As output is bascially made by more labor as owners of labors are more than that of capital.

We can see that power of K is 1 /5 and Power of L is 4 /5 . This means that 1/5 * 100 = 20 % of GDP will accrue to owners of capital and 4/5 * 100 = 80 % of GDP will accrue to owners of Labor .

Hence (B) is a correct answer

Rahul Sunny answered 2 years ago

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