MGEB06 Assignment 1 (WINTER 2023) 1
MGEB06 – WINTER 2023
Macroeconomic Theory and Policy
Assignment 1
Due: On (or before) Friday, March 3rd 11pm
(Note: Assignments submitted after 11pm on March 3rd WILL NOT BE accepted under ANY
circumstance.)
The table below should be the cover page of each question submitted for your assignment.
Group members: Student number
Instructions:
You can submit an individual or group assignment. If you submit a group assignment, there
must be no more than FIVE students in your group (coming from any one of the sections of
MGEB06 this term) and you must submit ONE copy.
A PENALTY OF 10% OF THE TOTAL MARKS will be imposed if you FAIL TO DO THE
FOLLOWING: Submit the filled-in table as your cover page (for EACH answer uploaded)
Label your graph(s); otherwise, marks will be subtracted.
No credit will be given if you do not show your work (i.e., don’t simply say the answer is 3 write
down enough of the steps you used to arrive at this answer).
Your answer should be structured in a way such that those that know little about economics
will have no difficulty understanding your argument/answer.
DO NOT USE any notations that are not used in lectures. If you use your own notations and/or
abbreviations that are not being used in lectures, you will receive a grade of zero for that
question.
MGEB06 Assignment 1 (WINTER 2023) 2
Question 4 (20 points) – Chapter 3/8/9
Consider a Cobb–Douglas production function with three inputs. K is capital (the number of machines),
L is labor (the number of workers), and H is human capital (the number of university degrees among the
workers). The production function is
Y = K1/3 L1/3 H1/3
a) Derive an expression for the marginal product of labor. How does an increase in the amount of human
capital affect the marginal product of labor?
b) Derive an expression for the marginal product of human capital. How does an increase in the amount
of human capital affect the marginal product of human capital?
c) What is the income share paid to labor? What is the income share paid to human capital? In the
national income accounts of this economy, what share of total income do you think workers would
appear to receive?(Hint: Consider where the return to human capital shows up.)
d) An unskilled worker earns the marginal product of labor, whereas a skilled worker earns the marginal
product of labor plus the marginal product of human capital. Using your answers to parts (a) and (b),
find the ratio of the skilled wage to the unskilled wage. How does an increase in the amount of human
capital affect this ratio? Explain.
e) Some people advocate government funding of university scholarships as a way of creating a fairer
society. Others argue that scholarships help only those who are able to go to university. Do your
answers to the preceding questions shed light on this debate?