Macroeconomics HW 2

Macroeconomics HW 2 - Maria Vega David Santamaria Joaquin...

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Maria Vega David Santamaria  Joaquin Castillo Nicole Perez REVIEW QUESTIONS 1.What is a production function? What are some factors that can cause a nation's production function to shift  over time? What do you have to know besides an economy's production function to know how much output the  economy can produce?  Production function tells us the amount of output that can be produced with any given quantity of capital and labor. Factors  that may cause a nations production function to shift overtime would be holding labor fixed (relationship between output  and capital) and holding capital fixed (relationship between output and labor) either case the production function slopes  upward, meaning a greater use of capital or labor leads to more output. In order to estimate how much output the  economy can produce you'll need besides the economy's production function the supply shock it consists of a shift of  production function, which implies a change in the amount of output that can be produced with given amounts of capital  and labor. 2. . The production function slopes upward, but its slope declines from left to right. Give an economic  interpretation of each of these properties of the production function.  The production function slopes upward from left to right. The slope of the production function reveals that, as the capital  stock increases, more output can be produced.   The marginal product of capital declines as the capital stock is increased.  Because the marginal product of capital is the slope of the production function, the slope of the production function  decreases as the capital stock is increased.   The tendency for the marginal product of capital to decline as the amount of  capital in use increases is called the diminishing marginal productivity of capital. 5. What is the MPN curve? How is the MPN curve related to the production function? How is it related to labor  demand?  An MPN curve, marginal product of labor, is the extra output that can be produced when labor increases by one unit, with  capital held constant. It can be measured as the slope of the production function relating output to labor falls as  employment rises, Implying that labor also diminishes marginal productivity. It relates to labor demand because the labor  demand curve is identical to the MPN curve, this is because an increase in the real wage causes firms to demand less  labor, the labor demand curve slopes downward.
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