VIDEO solution: Consider the Cobb-Douglas production function: Y = A * K^b * L^(1-b), where Y is output; K is capital; and L is labor hours worked. A is total factor productivity, and b is 0.5. Analyze how the marginal product of labor (MPL) changes when: a) L increases by 10% b) b falls from 0.5 to 0.3.

Suppose that the production function is Cobb-Douglas. (a) Find expressions for k^*, y^*, and c^* as functions of the parameters of the model, s, n, δ, g, and α(b) What is the golden-rule value of k ? (c) What saving rate is needed to yield the golden-rule capital stock? | Numerade