Assume that the country Lusitania has two industries, clothing production and computer chip production. At first, both industries have identical aggregate production functions. The following table shows how the output of each industry is affected by a change in efficiency units of labor. Using the data in the table, draw a graph showing how output (on the y-axis) changes with efficiency units of labor (on the x-axis). What explains the shape of the graph? Why is it valid in this case to plot output against the efficiency units of labor and leave the stock of physical capital in the background? A Lusitanian inventor has produced a new technology that doubles the output of computer chips for any combination of capital and labor. Explain, using an equation, how this invention affects the production of computer chips. Create a new table for computer chip production and compare it to the (unchanged) table for clothing production. If you were a central planner, would you make any changes to the allocation of labor, holding capital fixed? If so, what factors might prevent you from implementing your policy?
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Assume that the country Lusitania has two industries, clothing production and computer chip production. At first, both industries have identical aggregate production functions. The following table shows how the output of each industry is affected by a change in efficiency units of labor.
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Using the data in the table, draw a graph showing how output (on the y-axis) changes with efficiency units of labor (on the x-axis). What explains the shape of the graph? Why is it valid in this case to plot output against the efficiency units of labor and leave the stock of physical capital in the background?
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A Lusitanian inventor has produced a new technology that doubles the output of computer chips for any combination of capital and labor. Explain, using an equation, how this invention affects the production of computer chips. Create a new table for computer chip production and compare it to the (unchanged) table for clothing production.
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If you were a central planner, would you make any changes to the allocation of labor, holding capital fixed? If so, what factors might prevent you from implementing your policy?
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