9780070109100, Chapter 14 6, Problem 1E

Prévia do material em texto

Chapter 14.6, Problem 1E Step-by-step solution Step 1 of 1 1. Capital alone is More specifically, the production function is K = pK. The constancy of the capacity-capital ratio p means that the output level is a specific multiple of the amount of capital used. Since the production process obviously requires the labor factor as well, the equation above implies that labor and capital are combined in a fixed proportion, for only then can we consider capital alone to the exclusion of labor. This also seems to carry the implication of a perfectly elastic supply of labor.