Lecture 5 Example 3.1 -- Cobb Douglas production function -- Blank

# Lecture 5 Example 3.1 -- Cobb Douglas production function -- Blank

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1/3 ECO 320L INTERMEDIATE MACROECONOMICS Example: Cobb-Douglas production function 9/1/2010 Professor Beatrix Paal BRB 3.114 [email protected] (512) 475-8531 THE FUNCTIONAL FORM AND MARGINAL PRODUCTS 1 ( , ) F K N AK N  MPK = ( , ) F K N K = 11 A K N   and MPN = ( , ) F K N N = 1 (1 ) A K N   numerical example: 1/3 2/3 ( , ) 600 F K N K N MPK = 200 KN and MPN = 400 For example, calculate the values of Y , MPK and MPN , if K =1 and N =64. F (1, 64) = 600(1) (64) 600(1)(16) 9600  MPK (1,64) = 200(1) (64) 200(1)(16) 3200 MPN (1,64) = 400(1) (64) 400(1)(0.25) 100 Interpretation: with 1 machine and 64 hours of work, the economy can produce 9600 units of output. A second machine would produce during these 64 hours approximately * 3200 additional units of output. Or, when there is one machine, the 65 th hour of work would produce approximately an additional 100 units of output. * Why approximately, not exactly? Because these are marginal properties. Starting from 1 machine and 64 hours of work, an additional ε machine would produce 3200ε units of additional output, where ε is small.

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Lecture 5 Example 3.1 -- Cobb Douglas production function -- Blank

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