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Unformatted text preview: Lecture 2 The Solow Model ECON 7240 II  2 The Production Function Aggregate output at t is Factors of production: K ( t ) = capital L ( t ) = labor A ( t ) = technology This specification assumes technology is laboraugmenting or Harrodneutral. )). ( ) ( ), ( ( ) ( t L t A t K F t Y = ECON 7240 II  3 Constant Returns to Scale For any x , y , 0, F ( x , y ) = F ( x , y ). Economy is big enough so differentiation and specialization of labor and capital are unimportant. Other inputs, such as land or natural resources, are unimportant. Intensive form Define We can write production function as AL K k = ). ( ) , ( k ALf AL K F = ) 1 , ( ) ( k F k f = ECON 7240 II  4 Other Production Assumptions There is no production without capital. f (0) = 0 The marginal product of capital is positive. f ( k ) > 0 for all k 0. Diminishing returns to capital f ( k ) < 0 for all k 0....
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This note was uploaded on 01/09/2011 for the course ECON 7230 taught by Professor Feigenbaum during the Spring '10 term at Utah Valley University.
 Spring '10
 Feigenbaum
 Macroeconomics

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