Assume That a Competitive Economy Can Be Described by a Constant

Essay

Assume that a competitive economy can be described by a constant returns to scale (Cobb-Douglas) production function and all factors of production are fully employed. Holding other factors constant, including the quantity of capital and technology, carefully explain how a one-time, 10-percent increase in the quantity of labor (perhaps the result of a special immigration policy) will change each of the following: a. the level of output produced;
b. the real wage of labor;
c. the real rental price of capital;
d. labor's share of total income.