A model of production Flashcards

4.2 Jones

1
Q

What does the simplified economic model with ice cream production represent?

A

It represents a closed economy where ice cream is the only consumption good, used to demonstrate how labor (L) and capital (machines, K) interact to produce goods

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2
Q

The Production Function

A
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3
Q

what is F (K , L)

A

a generic function describing how inputs yield output

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4
Q

To calculate how much Y from K and L, we use:

A

Cobb-Douglas production function

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5
Q

Cobb-Douglas production function

A
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6
Q

Generic Cobb-Douglas production function:

A
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7
Q

Returns to Scale

A
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8
Q

Marginal Benefit of Hiring a Worker → additional revenue

A
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9
Q

Marginal Cost of Hiring a Worker →

A

wage

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10
Q

Marginal Cost = Marginal Benefit for Labor:

A
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11
Q

Marginal Cost = Marginal Benefit for Capital:

A

where r is the price of capital

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12
Q

Producer’s Profit =

A
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13
Q

Given p, r , and w , the producer chooses K and L to maximize its profit:

A
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14
Q

Supply and Demand in the Capital and Labor Markets

A
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15
Q

the main 5 equations

A
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16
Q
A