Midterm Review_AAP-09_B&amp;W

# Output how output 13 gdpd example with two goods gdp0

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Unformatted text preview: tly 2000) How else would you measure changes in output? How output 13 GDPD Example With Two Goods GDP0 = P0,x X0 + P0,y Y0 GDP1 = P1,x X1 + P1,y Y1 RGDP0 = P0,x X0 + P0,y Y0 RGDP1 = P0,x X1 + P0,y Y1 GDPD1 = P , x X 1 + P , yY1 GDP 1 1 1 ≡ RGDP P0, x X 1 + P0, yY1 1 This shows that for GDPD prices are weighed by current goods GDPD produced 14 Production, Labor & Income TOPIC 4 15 Cobb-Douglas Production Function: Cobb- Y= AKαL1-α Y (Total Output) K2, A K1, A Y L2, A L1, A K2>K1 L2>L1 I. MPL (Marginal Product of Labor) L II. MPK (Marginal Product of Capital) K K2, A K1, A L2, A L1, A L K 16 Production • A C-D production function: Y = A K0.3L0.7 CIncreases with A (proportionally) Increases Increases with K and L (less than proportionally) Increases • Marginal products of K and L Slope of the production function Slope MPL↓ with L, and ↑ with K and A MPL MPK↓ with K, and ↑ with L and A MPK 17 Production • MPK & MPL are also the demand for K & L MPL demand under perfect competition MPL = W/P, MPK = R/P = r + δ The MPL & MPK functions define the equilibrium demands for K & L Aggregated over all firms they become the economyeconomywide demand for Labor and Capital 18 Market Equilibrium EQUILIBRIUM: • Labor market equilibrium determines wage rate and quantity of labor employed Labor Supplied = Labor Demanded Labor • Capital market equilibrium determines rental rate and quantity of capital and investment Savings = Investment Sav...
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## This note was uploaded on 03/02/2010 for the course BUAD 350 taught by Professor Safarzadeh during the Spring '07 term at USC.

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