Question:
Consider an economy where technology is characterised by the production function:
$Y = 50K^{0.4}L^{0.6}$
where, Y is output, K is capital, and L is labour.
Assuming perfect competition in the product market and in the factor markets, the share of total income paid to labour is equal to
Consider an economy where technology is characterised by the production function:
$Y = 50K^{0.4}L^{0.6}$
where, Y is output, K is capital, and L is labour.
Assuming perfect competition in the product market and in the factor markets, the share of total income paid to labour is equal to
$Y = 50K^{0.4}L^{0.6}$
where, Y is output, K is capital, and L is labour.
Assuming perfect competition in the product market and in the factor markets, the share of total income paid to labour is equal to
Updated On: Feb 10, 2025
- 0.2
- 0.3
- 0.4
- 0.6
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The Correct Option is D
Solution and Explanation
In a Cobb-Douglas production function under perfect competition, the share of income paid to
each factor is equal to the exponent of that factor. For labor L, the exponent is 0.6, meaning
60% of the output is allocated to labor.
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