Question

Suppose an economy produces 500 units of output, the aggregate capital stock is 16, employment is 625, and the production function is $F(K, N) = K^{0.25}N^{0.75}$. a. What is total factor productivity in this case under the assumption that workers and capital are operating at 100% capacity? b. Now suppose that the economy is in a boom and workers in the economy are putting in 125% of the time working than they usually would, but the measure of employment remains the same. Given TFP from [a], how much output would be produced. c. What is the amount of mismeasurement in TFP from [c]. (Note: 2 points for each part. 1 point for the correct number, 1 point for showing your work.)

          Suppose an economy produces 500 units of output, the aggregate capital stock is 16, employment is 625, and the production function is $F(K, N) = K^{0.25}N^{0.75}$.
a. What is total factor productivity in this case under the assumption that workers and capital are operating at 100% capacity?
b. Now suppose that the economy is in a boom and workers in the economy are putting in 125% of the time working than they usually would, but the measure of employment remains the same. Given TFP from [a], how much output would be produced.
c. What is the amount of mismeasurement in TFP from [c].
(Note: 2 points for each part. 1 point for the correct number, 1 point for showing your work.)

Suppose an economy produces 500 units of output, the aggregate capital stock is 16, employment is 625, and the production function is F(K, N) = K^0.25N^0.75.
a. What is total factor productivity in this case under the assumption that workers and capital are operating at 100% capacity?
b. Now suppose that the economy is in a boom and workers in the economy are putting in 125% of the time working than they usually would, but the measure of employment remains the same. Given TFP from [a], how much output would be produced.
c. What is the amount of mismeasurement in TFP from [c].
(Note: 2 points for each part. 1 point for the correct number, 1 point for showing your work.)

Added by Olga P.

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