Question

An economy initially has 200 units of physical capital per worker. Each year, it increases the amount of physical capital by 10%. According to the aggregate production function for this economy, each 1% increase in physical capital per worker, holding human capital and technology constant, increases output per worker by 0.25%. In three years' time, what is the level of physical capital per worker in this economy? 266.2 units 200 units 242 units

Answer 1

266.2 units

Step-by-step explanation:

The computation of the level of physical capital per worker in three years is show below:

For the first year, it is

= 200 units + 200 × 10%

= 200 units + 20 units

= 220 units

For the second year, it is

= 220 units + 220 × 10%

= 220 units + 22 units

= 242 units

And, for the third year, it is

= 242 units + 242 × 10%

= 242 units + 24.2 units

= 266.2 units