Question

i) Derive the output elasticity of labour in the following alternative production function: Y = c + alnk + BlnL ii) Supp...


i) Derive the output elasticity of labour in the following alternative production function: Y = c + alnk + BlnL ii) Suppose B = 0.5 and other factors are fixed, explain the unit change in output due to a percentage change in labour.
Transcribed: i) Derive the output elasticity of labour in the following alternative production function: Y = c + alnk + ßlnL ii) Suppose B = 0.5 and other factors are fixed, explain the unit change in output due to a percentage change in labour.

Answer

Production Function

Production Function represents the level of Output with the combination of different inputs like; capital and labor. In production function, there are two types of Factors fixed and variable. Because the Fixed factor remains constant, a change in the variable factor changes the level of output. Capital and Labour is the Input which is taken into consideration in the Production function generally. It shows whether the combination of Inputs is Productive or not. 

(Part ii ) Output Elasticity of Labour  :

Output elasticity of labor measures the change in the level of output due change in the level of Labour. Labor is the Variable factor, when the proportion of labor with capital changes it may cause to change in the level of output. 

Production function = Y =  c + linK + BsnL

here        y = Aggregate output 

                c= Capital

            αinK +βink= Variabl factors. 

(Part ii ) 

Output elasticity of Labour shows the change in output due to a change in the labor 

If the change in the Variable factor that is labor ( β)= 0.5 and other factors remain constant. 

It will change the Output by 50%. 

 

 

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