Econ 100B Section 5 Answers

The demand for capital depends on the marginal

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ket: • The production function between output and capital shows how economic output, Y, depends on the size of the capital stock, K, for a given labor force, L0, and for a given level of technology, A0. Diagram: RK, MPK Y0 Y1 Y0 = A F(K,L0) R0 Y1 = A F(K,L1) MPK0 R1 MPK1 K K K 1 K SPRING 2014 ECONOMICS 100B GSI: KRISTYN ABHOLD b. Equilibrium in the capital market: i. The demand for capital depends on the marginal product of capital MPK = , which: 1. equals the slope of the production function 2. is always positive 3. declines as the amount of capital increases (diminishing marginal product) ii. Factors that shift the demand for capital curve: 1. Changes in the labor force, ΔL. 2. Supply (or technology) shocks, ΔA. a. Remember, a...
View Full Document

This note was uploaded on 02/25/2014 for the course ECON 100B taught by Professor Wood during the Spring '08 term at Berkeley.

Ask a homework question - tutors are online