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17. Assume that a Cobb-Douglas production function is a good representation of an imaginary island economy (where the substitution effect is stronger than the income effect) and that the island economy was initially at equilibrium. Assume further that a shipwreck off the shore of the island leads to an increase in the capital stock as machines begin washing ashore from the shipwreck. Assuming all else is held constant, if the real wage was perfectly flexible and given the change in the labor market, what would happen to the production function (where output is on the horizontal axis and labor is on the vertical axis)? a. A leftward movement along the production function (therefore no shift of the production function) b. A rightward movement along the production function (therefore no shift of the production function) c. An upward shift of the entire production function d. A downward shift of the entire production function 18. Assume that a Cobb-Douglas production function is a good representation of an imaginary island economy (where the substitution effect is stronger than the income effect) and that the island economy was initially at equilibrium. Assume further that a shipwreck off the shore of the island leads to an increase in the capital stock as machines begin washing ashore from the shipwreck. Assuming all else is held constant, if the real wage is completely flexible, what will happen to the equilibrium output? a. The equilibrium output will increase b. The equilibrium output will decrease c. The equilibrium output will remain the same d. Not enough information is given to determine the answer 19. Assume that a Cobb-Douglas production function is a good representation of an imaginary island economy (where the substitution effect is stronger than the income effect) and that the island economy was initially at equilibrium. Assume further that a shipwreck off the shore of the island leads to an increase in the capital stock as machines begin washing ashore from the shipwreck. If the real wage is completely flexible, what will happen to the marginal productivity of labor? a. There would be an increase in the marginal productivity of labor. b. There would be a decrease in the marginal productivity of labor. c. There would be no change in the marginal productivity of labor.

          17. Assume that a Cobb-Douglas production function is a good representation of an imaginary island
economy (where the substitution effect is stronger than the income effect) and that the island
economy was initially at equilibrium. Assume further that a shipwreck off the shore of the island
leads to an increase in the capital stock as machines begin washing ashore from the
shipwreck. Assuming all else is held constant, if the real wage was perfectly flexible and given
the change in the labor market, what would happen to the production function (where output is on
the horizontal axis and labor is on the vertical axis)?
a. A leftward movement along the production function (therefore no shift of the production
function)
b. A rightward movement along the production function (therefore no shift of the production
function)
c. An upward shift of the entire production function
d. A downward shift of the entire production function
18. Assume that a Cobb-Douglas production function is a good representation of an imaginary island
economy (where the substitution effect is stronger than the income effect) and that the island
economy was initially at equilibrium. Assume further that a shipwreck off the shore of the island
leads to an increase in the capital stock as machines begin washing ashore from the
shipwreck. Assuming all else is held constant, if the real wage is completely flexible, what will
happen to the equilibrium output?
a. The equilibrium output will increase
b. The equilibrium output will decrease
c. The equilibrium output will remain the same
d. Not enough information is given to determine the answer
19. Assume that a Cobb-Douglas production function is a good representation of an imaginary island
economy (where the substitution effect is stronger than the income effect) and that the island
economy was initially at equilibrium. Assume further that a shipwreck off the shore of the island
leads to an increase in the capital stock as machines begin washing ashore from the shipwreck. If
the real wage is completely flexible, what will happen to the marginal productivity of labor?
a. There would be an increase in the marginal productivity of labor.
b. There would be a decrease in the marginal productivity of labor.
c. There would be no change in the marginal productivity of labor.

17 assume that a cobb douglas production function is a good representation of an imaginary island economy where the substitution effect is stronger than the income effect and that the island 71314

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