SEM 1 - LEC 3 - INTRO Flashcards
How do we denote capital and labour
We assume that there is a certain number of people available to produce the consumption good.
This number is denoted by L ̄ (labour).
We also assume that there is a certain number of machines to produce the consumption good.
This number is denoted by K ̄ (capital).
what’s the production function given by
what’s the profit maximisation problem equation
what’s The marginal product of capital (MPK)
is the extra amount of output that is produced when one unit of capital is added, holding all other inputs constant.
The marginal product of labour (MPL)
is the extra amount of output that is produced when one unit of labour is added, holding all other inputs constant.
For our Cobb-Douglas production function, what is the marginal product of capital is given by
Equation (4) tells us that the marginal product of capital is proportional to the average amount that each unit of capital produces, Y/K, where the factor of proportionality is 1/3, the Cobb-Douglas exponent.
The marginal product of capital depends on the ratio L/K: therefore, MPK declines as K rises.
For our Cobb-Douglas production function, what is the marginal product of labour is given by:
Equation (5) tells us that the marginal product of labour is proportional to the average amount that each worker produces, Y /L, where the factor of proportionality is 2/3, the Cobb-Douglas exponent.
The marginal product of labour depends on the ratio K/L: therefore, MPL declines as L rises.
how can we summarise, the solution is to hire capital and labour until their marginal products fall to equal r and w, respectively.
what are the equations for the following :
Unknown or endogenous variables: Y, K, L, r, w. Production function: Rule for hiring capital: Rule for hiring labour: Demand = supply of capital: Demand = supply for labour:
Parameters or exogenous variables: A ̄, K ̄, L ̄.
what’s a partial equilibrium
In microeconomics, when supply and demand in a single market determine the price and the quantity sold in the market
how do you solve the general equilibrium model graphically
what is the equilibrium wage proportional to
the equilibrium wage is proportional to output per
worker:
what is the equilibrium rental rate on capital is proportional to
output per unit of capital
how can you show that the sum of payments to labour and capital is exactly equal
total production in the economy.
what does per capita mean
per person