Answer to Question #54908 in Macroeconomics for jennifer

Question

Assume that the world works according to the Classical model. There are two countries
in the world, Country 1 and Country 2, that each produce output according to the following CobbDouglas
production function:
Y = 5(K^0.4L^0.6)


In addition to having the same production function, Country 1 and Country 2 are also identical in
terms of hours of labor supplied by workers (the stock of labor), stock of capital, real wage and real
rental rate of capital.
Assume that Country 1 can suddenly benefit from a significant improvement in technology, which
changes its production function to Y = 10(K^0.4L^0.6)
a)How will the MP L change in the two countries when the production function in Country 1 changes?
Recall that with a Cobb-Douglas production function