325_Lecture13_March14

325_Lecture13_March14 - FIRMS IN THE TWO-PERIOD FRAMEWORK...

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1 F IRMS IN THE T WO- P ERIOD F RAMEWORK M ARCH 14, 2011 March 14, 2011 2 B ASICS Introduction ± Embed firms in two-period (multi-period) economy ± In each period t , representative firm produces according to a production technology A t f ( k t , n t ) ± n t :labor used for production ± k t : capital (“machines and equipment”) used for production ± A t : total factor productivity ± A catch-all measure for level of sophistication of technology ± Real Business Cycle (RBC) view: the driving force behind the periodic ups and downs of macroeconomic activity (Chapter 13) ± For now, suppose A t = 1 always (i.e., in both period 1 and 2)
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2 March 14, 2011 3 B ASICS Introduction ± Embed firms in two-period (multi-period) economy ± In each period t , representative firm produces according to a production technology A t f ( k t , n t ) ± n t :labor used for production ± k t : capital (“machines and equipment”) used for production ± A t : total factor productivity ± A catch-all measure for level of sophistication of technology ± Real Business Cycle (RBC) view: the driving force behind the periodic ups and downs of macroeconomic activity (Chapter 13) ± For now, suppose A t = 1 always (i.e., in both period 1 and 2) ± Broad macro view of the factors of production ± Labor – all types ± Capital ± Machines and equipment ± Trucks ± Factories ± A stock (not a flow…) variable ± Takes time to build capital (simple starting assumption: takes one period) The function f ( k , n ) describes how capital and labor combine with each other to yield output (goods) Can also think of education and other intangibles (i.e., experience, brand name) as “capital” March 14, 2011 4 P RODUCTION F UNCTION Model Structure ± Production function f ( k t , n t ) with all the “usual properties” of production functions ± Strictly increasing in k t and n t ± Diminishing marginal product in k t and n t k t n t f(k t ,n t ) f(k t ,n t ) for any t Recall from intro micro The extra output that results from using one additional unit of input total output (i.e., GDP)
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3 March 14, 2011 5 P RODUCTION F UNCTION Model Structure ± Production function f ( k t , n t ) with all the “usual properties” of production functions ± Strictly increasing in k t and n t ± Diminishing marginal product in k t and n t ± When allow time-varying A t (Chapter 9 and Chapter 13), changes in A
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This document was uploaded on 11/01/2011 for the course ECON 325 at Maryland.

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325_Lecture13_March14 - FIRMS IN THE TWO-PERIOD FRAMEWORK...

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