CFA Practice Question

There are 253 practice questions for this study session.

CFA Practice Question

In the Cobb-Douglas production function, if MPL increases, then it's most likely:
A. K/L has increased.
B. labor has increased more than capital.
C. there is a technology improvement.
Explanation: Capital has increased more than labor so MPL has increased.

User Contributed Comments 4

User Comment
SMcalister I'm not sure why C) is incorrect. I would have thought that an improvement in tech would lead to increase in MPL and that an increase in K/L would lead to capital deepening with diminishing returns.
BB465 I'm also curious about that same issue SMcalister
bruno5104 For me, if MPL has increased is because of one (or various) of the factor: (1-alpha), Y or L.
Increasing MPL means:
Y increases and-or;
L decreases and-or;
(1-alpha) increases.
gkbarr88 MPL reflects the production value of the next unit of labor. In a system with diminshing returns, MPL goes up when fewer resources are allocated to labor->more is allocated to capital. Hence, K/L ratio increases.
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