Lecture06_fall2009

Lecture06_fall2009 - 10/18/2009 Ec183, Fall 2009 Leah...

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10/18/2009 1 Ec183, Fall 2009 Leah Boustan Lecture 6: Agenda • Announcements: Graded hypothesis assignment returned next class. • Before the midterm: Class on the great merger movement on Thursday; midterm review on Tuesday Sample midterm posted on line with solution key • Clarifying returns to scale calculation • Lecture on transportation revolution and the railroad Clarifying returns to scale calculation Start with Cobb Douglass production function: Q = AK α L 1- α - Divide through by L: Q/L = A(K/L) α - Take logs of both sides - log(Q/L) = log A + α log (K/L) Notice: No returns to scale. The L term (# of workers) drops out. What if we allow for a more general production fn: Q = AK α L β - Divide through by L: Q/L = A(K/L) α L [ β - (1- α )] - Take logs: log(Q/L) = log A + α log (K/L) + c log(L) where c = [ β - (1- α )] Question 1: Is c > 0? That is, are bigger plants associated with higher output per worker? (slope)
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10/18/2009 2 Lecture 6: Transportation revolution • Declining transportation costs allowed grains and meat to be shipped East, while people and capital flowed West. Transportation investments created a national market in which the “law of one price” held. • The railroad was the single most important technology in this process. But, was the railroad necessary to the creation of a national market. In other words, could substitutable technology have achieved similar ends?
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This note was uploaded on 01/25/2010 for the course ECON 183 taught by Professor Boustan during the Fall '09 term at UCLA.

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Lecture06_fall2009 - 10/18/2009 Ec183, Fall 2009 Leah...

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