Suppose we interpret capital to include human capital as well knowledge as capital. Hence, production function can be simplified as Y = AK. The term for capital K already includes labor as human capital as well as knowledge as capital. Show that this production function does not exhibit diminishing MPK. Give arguments why capital which includes knowledge may not exhibit diminishing returns in this setting?

Suppose we interpret capital to include human capital as well knowledge as capital. Hence, production function can be simplified as Y = AK. The term for capital K already includes labor as human capital as well as knowledge as capital. Show that this production function does not exhibit diminishing MPK. Give arguments why capital which includes knowledge may not exhibit diminishing returns in this setting?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter9: Production Functions

Section: Chapter Questions

Problem 9.8P

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