Change in the quantity of output a firm can produce

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change in the quantity of output a firm can produce using a given quantity if inputs . 3 sources ( better machinery & equipment / increases in human capital : accumulated knowledge and skills workers acquire from education and training/better means of organizing & managing production ex: Just in time in Toyota) At very high levels of capital per hour worked, further increases in capital per hour worked will not result in any increase in real GDP per hour worked Law of diminishing returns: as we add more input (capital) to a fixed quantity of another input (labor) output increases by smaller additional amounts. Technological change= key to sustaining economic growth Increases output per hour worked shifts up per-worker Pd function A country experience increasing standards of living only if it experiences continuing technological change.
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Ex: Soviet Union’s failure = capital per hour worked grew rapidly diminishing returns in smaller increases in real GDP (slow rate of tech change) managers had little incentive to adopt new technology (no competition) New growth theory :
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