This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: 1 31 Productivity, Output, and Employment, Part 1 32 Agenda • The Production Function • The Demand for Labor 33 The Production Function • A production function shows how businesses transform factors of production into output of goods and services through the applications of technology. 34 The Production Function • Factors of production : ¾ Capital ( K ) ¾ Labor ( N ) ¾ Other (raw materials, land, energy, etc.) • The productivity of factors depends on technology and management ( A ). 2 35 The Production Function • The economy’s production function is: Y = AF ( K , N ) ¾ Shows how much output ( Y ) can be produced from a given amount of capital ( K ) and labor ( N ) and a given level of technology ( A ). ¾ The parameter A is “ total factor productivity ” or the effectiveness with which K and N are used. 36 The Production Function • A more specific production function that works well in macroeconomics is the Cobb Douglas production function. Y = AK α N (1 α ) • For the U.S. economy it would be: Y = AK 0.3 N 0.7 37 The Production Function • The Production Function: Output and Capital ¾ Shows how Y depends on K for a given N and A. 38 The Production Function: Output & Capital K Y 3 39 The Production Function • The Production Function: Output and Capital ¾ Two main properties of this production function: • Exhibits increasing returns to capital. – Slopes upward because more K produces more Y. • Exhibit diminishing marginal product of capital. – Slope becomes flatter because each additional increment of K produces less additional Y. 310 The Production Function • The Production Function: Output and Capital ¾ Marginal product of capital , MPK = ∆ Y / ∆ K ....
View
Full Document
 Spring '08
 Wood
 Economics, Supply And Demand, MPN

Click to edit the document details