c.If a technological advance improves the production function,this is likely to ase the margina produ cts of both capital and labor.Hence,the real wage and the real rental price both increase. 2.If a 10-percent increase in both capital and labor causes output to increase by less than 10 percent,the production function is said to exhibit decreasing returns to scale. ses output to increase by more than 10p productio function is aid exhibit increasing returns to scale.Why might a productio function exhibit decreasing or increasing returns to scale? 2.A production function has decreasing returns to scale if an equal percentage inerease in all factors of production leads toa smaller pere tage increase in output.For e le if we double the amoun capital and lab or,and out than dou then the production function has decreasing returns to capita and labor.This may happen if there is a fixed factor such as land in the production function,and this fixed factor becomes scarce as the economy grows larger.A production function has increasing returns to scale if an equal percentage increase in all factors of production leads to a larger percentage ncrease in outpu For example,if doubling inputs of capital and labor more than doubles output, then the production function has increasing returns to scale.This may happen if speciaiation of labor becomes greater as population grows.For orker builds a car,then it takes him a long e time beca se he has to lea rn many change tasks and tools;all of this is fairly slow.But if many workers build a car,then each one can specialize in a particular task and become very fast at it. 3.According to the neoclassical theory of distribution,the real wage any worker equals that worker's ma t's use oht to examine the incomes of two groups of workers:farmers and barbers. a.Over the past century,the productivity of farmers has risen substantially because of technological progress.According to the neoclassical theory,what should have happened to their real wage? b.In what units is the real wage discussed in part(a)measured? c.Over the same period,the productivity of barbers has remained constant.What should have happened to their real wage? d.In what units is the real wage in part(c)measured? e.Suppose workers can move freely between being farmers and being barbers. What does this mobility imply for the wages of far rmers and barbers? f.What do our previous answers imply for the price of haireuts relative to the price of food? g.Who benefits from technological progress in farming-farmers or barbers? 3.a.According to the neoclassical theory,technical progress that increases the c. If a technological advance improves the production function,this is likely to increase the marginal products of both capital and labor. Hence, the real wage and the real rental price both increase. 2. If a 10-percent increase in both capital and labor causes output to increase by less than 10 percent, the production function is said to exhibit decreasing returns to scale. If it causes output to increase by more than 10 percent,the production function is said to exhibit increasing returns to scale. Why might a production function exhibit decreasing or increasing returns to scale? 2.A production function has decreasing returns to scale if an equal percentage increase in all factors of production leads to a smaller percentage increase in output. For example, if we double the amounts of capital and labor,and output less than doubles, then the production function has decreasing returns to capital and labor.This may happen if there is a fixed factor such as land in the production function,and this fixed factor becomes scarce as the economy grows larger. A production function has increasing returns to scale if an equal percentage increase in all factors of production leads to a larger percentage increase in output. For example,if doubling inputs of capital and labor more than doubles output, then the production function has increasing returns to scale.This may happen if specialization of labor becomes greater as population grows. For example,if one worker builds a car, then it takes him a long time because he has to learn many different skills, and he must constantly change tasks and tools; all of this is fairly slow. But if many workers build a car,then each one can specialize in a particular task and become very fast at it. 3.According to the neoclassical theory of distribution,the real wage earned by any worker equals that worker’s marginal productivity. Let’s use this insight to examine the incomes of two groups of workers:farmers and barbers. a.Over the past century,the productivity of farmers has risen substantially because of technological progress.According to the neoclassical theory, what should have happened to their real wage? b. In what units is the real wage discussed in part (a) measured? c.Over the same period,the productivity of barbers has remained constant.What should have happened to their real wage? d. In what units is the real wage in part(c)measured? e.Suppose workers can move freely between being farmers and being barbers. What does this mobility imply for the wages of farmers and barbers? f.What do your previous answers imply for the price of haircuts relative to the price of food? g.Who benefits from technological progress in farming—farmers or barbers? 3. a.According to the neoclassical theory,technical progress that increases the