Dse 2016 Doubt

[Econenthusiast]

Could someone please tell me how this is done ?. The answers are 12 A and 13 D.

[Algaeconomics]

Compare the first order conditions of the two technologies

We see that the marginal productivity of K will be larger if rich hh if it chooses A and the MpK will be larger ror poor hh if it chooses B

Second part
It is given the N and L are both 1
So Yr= Kr^2
And Yp= Kr^1/2

So they are asking average K stocks dynamic path( N and L is 1 so it means the same as K stocks dynamic path

Which is 1/2 Yr + 1/2 Yp -  Kr- Kp

Subtitute and you will get D

[Algaeconomics]

Sorry I was mistaken for average change in K stock you need to divide the above expresion by 1/2
Then you will get d

[Econenthusiast]

Thanks a lot Alibaba!

[Algaeconomics]

No problem ;)

[Rajesh]

discussion_1.png
why this answer is b, not d?
i am getting change in y/change in t= 1/8-1/4(k^1/2) for the relatively poor household..but not able to comprehend further..

[Algaeconomics]

Our Rich HH has income Y= K^2
While poor HH has income Y=k^1/2

Now Let's take the first derivative of Rich HH Y'= 2K and Y''=2, both are greater than 0
So rich HH income is increasing at an increasing rate, thus it is increasing perpetually.

Now Let's look at Poor HH Y'=1/2K^-1/2 and Y''= -1/4K^-3/2
Y'>0 while Y'' <0 so it is increasing at a decreasing rate and thus It will tend to some finite number.

That is why B

you can refer to the graphs of such derivatives it will be more clear. :)

[Shree]

How to go about this?

Answer is (b)

[Shree]

I am unable to upload the ques.
I am talking about Q15 of the same paper

[Rajesh]

okok, got it, thanks:)

[Rajesh]

Note that for Ans 15th, if any of the 2 persons invest in land and not capital, then Y=0 according to production function, so its b

[Shree]

Thanks alot Rajesh. I thought some difficult concept has been applied here.