econ-3133 functions and variables
best represents constant return to scale
3Y=AF(3k,3L)
what is the aggregate production function
Y=AF(K,L)
An increase in foreign investment in Brazil's mining industry will increase the capital stock in Brazil. All else equal, as the capital stock increases, the marginal product of capital (MPK) will
decrease due to diminishing marginal returns
The marginal product of capital is the ________ curve for capital and the marginal product of labor is the ________ curve for labor.
demand; supply
All else equal, if the demand for labor increases and the supply of labor does not change, the equilibrium real wage will ________ and the equilibrium quantity of labor will ________.
increase; not change
All else equal, an increase in labor hours will cause a
movement up and to the right along PF1
The standard of living ultimately depends on labor productivity because
no limit to how much labor produtivity increases / limits exist on input of labor
The marginal product of capital is always ________ and it ________ as the capital stock increases.
positive - decreases
The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the firm's
production function
If the nominal rental price of capital divided by the price of output is less than the marginal product of capital, a firm that wishes to maximize profits will
purchase more capital goods
A firm that wishes to maximize profits will continue to hire labor until the
real wage = MPL
all else equal, increase in capital stock will cause a
shift from PF1 to PF2
All else equal, continued increases in the labor supply in an economy will lead to
smaller increases in real GDP
The two factors determining labor productivity are
the capital-labor ratio and total factor productivity.
The aggregate production function is an equation that shows the relationship between ________ and ________.
the inputs employed by firms; the maximum output firms can produce with those inputs
Firms decide the amount of labor and capital to use in production by employing inputs to the point where
the real wage equals the marginal product of labor and the real rental price of capital equals the marginal product of capital.
Diminishing marginal returns do not exist for increases in
total factor productivity
With the Cobb-Douglas production function, Y=AK1/4L3/4, if both capital and labor increase by 90%,what will happen to real GDP?
will increase by exactly 90%