101_F07_HO_2

101_F07_HO_2 - ECN 101 Shaofeng Xu Fall 07 Handout 2:...

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ECN 101 Fall 07 Shaofeng Xu Handout 2: Production Function: Return to Scale and Marginal Product Oct 7, 2007 1. Production Function Note in the economy, the technology describes the relationship between the input and output, i.e, how many output woud be produced given amounts of input. Mathematically, it is expressed as a production function: Y = F ( K;L ) , where Y is the amount of output, K is the input of capital like the machines, L is the input of labor which is often measured by the amount of workers employed. function F: The most famous example production function is Cobb-Douglas production function which is named from the mathematician Cobb and the economist Dou- glas(see page 55). The C-D production function has the form of Y = AK L 1 , where A is a parameter of technology which in most cases would be normalized to one when Y = K L 1 : Note that the production production could be at either individual level or aggregate level(more often in 101). A distinguishing
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101_F07_HO_2 - ECN 101 Shaofeng Xu Fall 07 Handout 2:...

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