High School

An economy initially has 200 units of physical capital per worker. Each year, it increases the amount of physical capital by 10%. According to the aggregate production function for this economy, each 1% increase in physical capital per worker, holding human capital and technology constant, increases output per worker by 0.25%.

In three years' time, what is the level of physical capital per worker in this economy?

A. 266.2 units
B. 200 units
C. 242 units

Answer :

Answer:

266.2 units

Explanation:

The computation of the level of physical capital per worker in three years is show below:

For the first year, it is

= 200 units + 200 × 10%

= 200 units + 20 units

= 220 units

For the second year, it is

= 220 units + 220 × 10%

= 220 units + 22 units

= 242 units

And, for the third year, it is

= 242 units + 242 × 10%

= 242 units + 24.2 units

= 266.2 units

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