question archive Suppose the current level of output is 6000 and the elasticity of output with respect to capital is 0

Suppose the current level of output is 6000 and the elasticity of output with respect to capital is 0

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Suppose the current level of output is 6000 and the elasticity of output with respect to capital is 0.4.

A 10% increase in capital would increase the current level of output to?

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The value of increase in the level of output on account of 10% increase in capital is 240 units.

The percentage increase in the current level of output is given by:

  • = Elasticity of output with respect to capital * percentage increase in capital
  • = 0.40 * 10%
  • = 4%

The magnitude of increase in the current level of output is given by:

  • = Percentage increase in the current level of output * current level of output
  • = 4% * 6,000
  • = 240

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