The+Aggregate+Production+Function+s05

# The+Aggregate+Production+Function+s05 - The Aggregate...

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The Aggregate Production Function We are looking for a function that describes how capital, labor, materials, and technology produce output. We want to do this for the entire economy (the US or Germany, Japan, etc.) We want our GDP, Y to equal some function of technology, capital and labor: Y = F (T, K, N) Y=real GDP T =technology K=capital (including natural resources) N=worker hours We know that GDP is a function of technology, capital, and worker hours: Y=F(T,K,N). There are restrictions that apply to developing an equation to describe this. Restrictions 1. If you increase K, Y increases 2. If you increase N, Y increases 3. If you increase T, Y increases 4. If T=0 or K=0 or N=0 then Y=0 5. There is a market economy. What restrictions would that imply? Consider the following example of the demand for delivery drivers at Pierre’s pizza. P \$10 S D Q The supply of deliverymen to Pierre’s is totally elastic, Pierre has no effect on the market. Pierre’s pizza will continue to hire workers until the increase in output from hiring the last worker is \$10. In a properly functioning market, an increase in the number of workers by 1 should

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## This note was uploaded on 04/09/2008 for the course ECO 2013 taught by Professor Denslow during the Spring '05 term at University of Florida.

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The+Aggregate+Production+Function+s05 - The Aggregate...

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