{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

03 Productivity, Output, and Employment, Part 1-1

# 03 Productivity, Output, and Employment, Part 1-1 - Agenda...

This preview shows pages 1–4. Sign up to view the full content.

1 3-1 Productivity, Output, and Employment, Part 1 3-2 Agenda The Production Function The Demand for Labor 3-3 The Production Function • A production function shows how businesses transform factors of production into output of goods and services through the applications of technology. 3-4 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 ).

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2 3-5 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. 3-6 The Production Function A more specific production function that works well in macroeconomics is the Cobb- Douglas production function. Y = AK ˞ N (1- ˞ ) For the U.S. economy it would be: Y = AK 0.3 N 0.7 3-7 The Production Function The Production Function: Output and Capital ¾ Shows how Y depends on K for a given N and A. 3-8 The Production Function: Output & Capital K Y
3 3-9 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. 3-10 The Production Function The Production Function: Output and Capital ¾ Marginal product of capital , MPK = ' Y / ' K . Equals the slope of production function graph ( Y vs. K ).

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern