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CES Production Function (II) Answer

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sachineco25
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31 views3 pages

CES Production Function (II) Answer

Uploaded by

sachineco25
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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First Equation:

−1
−𝜌 −ρ ] ρ
Q = A [∝ L + (1 − α)K

∂Q
MPL =
∂L

Take [∝ L−𝜌 + (1 − α)K −ρ ] = {∗∗∗∗}

−1
−1 −1
MPL = ( ) A {∗∗∗∗} ρ (−ρ α L−ρ−1 )
ρ

1+ρ
−( )
MPL = ∝ A {∗∗∗∗} ρ L−(1+ρ)

1+ρ
A(1+ρ) −( )
MPL = ∝ {∗∗∗∗} ρ L−(1+ρ)
Aρ

1+ρ
α −( )
MPL =
Aρ
(𝐴 (1+ρ)
{∗∗∗∗} ρ ) L−(1+ρ)

1
α −( ) (1+ρ)
MPL = (A {∗∗∗∗} ρ ) L−(1+ρ)
Aρ

α
MPL = (Q)(1+ρ) L−(1+ρ)
Aρ

α Q (1+ρ)
MPL = (L)
Aρ
Using Pq * MPL = w

α Q (1+ρ)
Pq * (L) = w
Aρ

So,

(1−α) Q (1+ρ)
Pq * (K) =r
Aρ

w ∝ K (1+ρ)
= (1−𝛼)
(L)
r

K (1+ρ) w(1 − α)
( ) =
L rα

1
K w(1 − α) (1+ρ)
( ) = ( )
L rα

1
L rα (1+ρ)
( ) = ( )
K w(1 − α)

Second Equation:
1
rα (1+ρ)
L=K * (w(1−α))

2
Third Equation:

Pq * Q = wL + rK

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