Determine the output expansion path (equation) for a Cobb-Douglas production function f(L,K) = 10LaK1-a. How does the shape of the output expansion path change as “a” changes?
What will be an ideal response?
ANSWER
Using the MRTS = w/r:
aK/(1 – a)L = w/r K/L = (1 – a)w/ar
As “a” increases, the output path gets flatter.
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