Production function approach to understanding growth

Question 1

What is a production function?

Answer 1

A representation between the relationship of primary and secondary factors of production and output.

Question 2

What are primary factors?

Answer 2

Labour and capital.

Question 3

What are secondary factors?

Answer 3

Technology, managerial expertise, skills, etc.

Question 4

According to the production function, what factors determine output?

Answer 4

Primary and secondary factors.

Question 5

What is the marginal product of capital?

Answer 5

Amount of extra output obtained with that one extra capital equipment. Denoted by MPk

Question 6

What is the marginal revenue product of capital?

Answer 6

The extra unit of revenue from the extra unit of capital equipment. Denoted by MRPk. Basically, PxMPk.

Question 7

What is diminishing marginal productivity?

Answer 7

Too much shit is useless, so you don’t increase 5ever, you stop where marginal cost = world price essentially.

Question 8

What is the optimal capital stock?

Answer 8

The ideal amount of capital stock a firm has because any more and diminishing returns is apparent.

Question 9

What is the marginal revenue product of labour?

Answer 9

The revenue that can be gained from an extra unit of labour. Given by MRPl = P(-) (product price) x MP(l) (marginal product of labour).