Question

Problem 4. For a closed economy with a Cobb-Douglas production function $x = K^\alpha y^{1-\alpha}$, where x is the output, K the capital stock, and y the amount of resource revenue (the extraction cost is negligible for the resource), $\alpha$ a constant ($0 < \alpha < 1$), (a) state and explain the conditions under which sustainable consumption is achieved (b) give an numerical example sustainable consumption is in fact achieved under the conditions you state in the above, and also show how this sustainable consumption level changes with different parameter levels (for this, you could use Excel, or any other software package).

          Problem 4. For a closed economy with a Cobb-Douglas production function $x = K^\alpha y^{1-\alpha}$, where x is the output, K the capital stock, and y the amount of resource revenue (the extraction cost is negligible for the resource), $\alpha$ a constant ($0 < \alpha < 1$), (a) state and explain the conditions under which sustainable consumption is achieved (b) give an numerical example sustainable consumption is in fact achieved under the conditions you state in the above, and also show how this sustainable consumption level changes with different parameter levels (for this, you could use Excel, or any other software package).

Problem 4. For a closed economy with a Cobb-Douglas production function x = K^α y^1-α, where x is the output, K the capital stock, and y the amount of resource revenue (the extraction cost is negligible for the resource), α a constant (0 < α < 1), (a) state and explain the conditions under which sustainable consumption is achieved (b) give an numerical example sustainable consumption is in fact achieved under the conditions you state in the above, and also show how this sustainable consumption level changes with different parameter levels (for this, you could use Excel, or any other software package).

Added by Brandi O.

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