Suppose the US experiences a natural disaster in which a tornado passes through most of the...

Suppose the US experiences a natural disaster in which a tornado passes through most of the country. This tornado ended up destroying the infrastructure of some highways, factories, and houses across the nation. Unfortunately, 5% of the population did not survive. Assuming the production function is Y = A K 0.3 N 0.7, respond to the following questions:

Part 1:
Given this natural disaster, how would the factors of production included in the production function above be impacted? Would total factor productivity (A), physical capital (K), and labor (N) increase, decrease, or remain unchanged? Justify your answer.

Part 2:
Given the economic shock experienced by this economy, would the marginal product of labor (MPN) and the marginal product of capital (MPK) be impacted in your view? If so, would they increase or decrease? Justify your answer graphically. Please use Y in your y-axis and K or N in the x-axis, be sure to label it properly. (Hint: it can be helpful to recall how the MPN and MPK are represented in the production function graph and how this shock will impact the production curve.)

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Expert Solution

Rahul Sunny answered 1 year ago

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