Problem 1: This is an analytical exercise from my macroeconomics book chapter: The Theory of Economic Growth. I want assistance in answering the following questions in order to be better understand this model.
(1) Consider the Cobb-Douglas production function
Y/L = (K/L)α (E)1-α
Show that multiplying both sides of this expression by L yields
Y= Kα (EL)1-α
I’m confuse because when I multiply both side by L I get
Y= Kα (E)1-α should not both L’s cancel out if you multiply both side by L?. The only way to get (EL)1-α is by doing this
Y/L(L) = (K/L)α (L) (E)1-α (L) ??
Problem 2: Using the production function as expressed in question (1), graph the relationship it implies between Y and K. Graph Y on the horizontal axis and K on the vertical axis. In constructing your graph, analytically calculate intercept and slope, and be sure your graph accurately reflects your calculations. Note that the slope of this relationship corresponds to the marginal product of capital.