Answer to Question #155965 in Macroeconomics for khushal

Question

Using the labor market and production function, show graphically, and state what happens to wages, output, and employment if the country is given a large amount of capital.

Answer 1

If the country is provided with large capital, then, as shown by the example of the Cobb-Douglas function, wages will increase, so will output and employment. The figure shows the new level as a curve Q2.