Section 3 - UNIVERSITY OF CALIFORNIA BERKELEY Dorian...

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Unformatted text preview: UNIVERSITY OF CALIFORNIA, BERKELEY Dorian Carloni Department of Economics ECON 100B, Fall 2011 SECTION 3: Aggregate Production and Productivity, Part 1 3.1. Aggregate Production We are going to work with a production function Y = A & F ( K;L ) , in which: ¡ the factors of production are: 1. Labor (L): the total number of worker hours 2. Capital (K): the stock of productive assets (real value of physical capital) ¡ technology (or total factor productivity) (A): is a measure of the productivity of the factors of produc- tion. It takes into account how productive labor and capital are together. We assume a Cobb-Douglas production function: F ( K;L ) = K & L (1 & & ) : ¡ & measures the contribution of capital to the production output. It can also be de&ned as the capital share of national income. Estimated to be : 3 for the U.S. economy ¡ constant returns to scale : F ( ¡K;¡L ) = ¡ & F ( K;L ) . Underlying idea: if you double ( ¡ = 2 ) the amount of both labor and capital you are using, output ( Y ) will also double. Using the Cobb-Douglas functionwill also double....
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This note was uploaded on 03/18/2012 for the course ECON 100B taught by Professor Wood during the Spring '08 term at Berkeley.

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Section 3 - UNIVERSITY OF CALIFORNIA BERKELEY Dorian...

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