Question

Assume that a competitive economy can be described by a constant returns to scale (Cobb Douglas) production function and all factors of production are fully employed. Holding other factors constant, including the quantity of capital and technology, explain how a one-time, 10-percent increase in the quantity of labor (perhaps the result of a special immigration policy) will change each of the following: the real rental price of capital;

Answer 1

Answer and Explanation:

Since there is an increase of 10% of the quantity of labor this would result an increase in the real rental price of capital due to which the ratio of capital labor would decrease

Therefore according to the given situation, the real rental capital price would rise

Hence, the above represent the answer