Econ Ch 3

#4

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number 9

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Which element in the Cobb Douglas production function cannot be measured directly

A productivity

The cost of the firm for the profit function is

RK - WL

In the Cobb Douglas production function Y=F(K,L)=AKaL1-a what does each letter represent

Y=output, A=productivity, K=capital, L=labor

What is the rule firms follow to determine how much of each input to hire in order to maximize profits

demand a quantity of each factor of production up until the marginal product of that factor falls to its real factor price

What are the 2 characteristics of Cobb Douglas production function that make it particularly useful to macroeconomists

constant returns to scale (output increases proportionately in inputs) and diminishing marginal product (increasing one input, then the increment in output declines)

How is capital determined

MPL x K

How is real labor determined

MPL x L

The revenue of the firm for the profit function is

P x F(K,L)

Profit function for a firm is written as

P x F(K,L) - RK - WL

how is national income distributed into real factor income

real labor + real capital

if there is an excess supply of a factor

the owners of the factor want to sell more of it than firms demand, forcing down the price of the factor

If a =0.3, how is the productivity variable measured

A=Y ------- K^0.3L^0.7

Based on the production function, the marginal product of labor is

AK0.4

In function Y=F(K,L), which variables are endogenous and exogenous

K and L are exogenous. Y is endogenous

what is an example of diminishing marginal product

agriculture: hold capital constant, increment in output going to decline. Work on land, if you continue to hire people it platues

what is the difference between economic and accounting profit

e: takes into account opportunity cost and account capital and labor. a only takes into account accounting costs. only account capital

If there is an excess demand for a factor

firms now want to buy more of the factor that owners of the factor want to sell, driving up the price of the factor

What relationship does the aggregate production function portray

how much output is produced from given quantities of the factors of production

what are the equilibrium conditions for profit maximization in factor (labor and capital) markets

marginal products = real factor prices

Does this production function exhibit diminishing marginal product of labor

no

national income is divided between payments to labor and the payments to capital, with the size of these payments determined by

the marginal products of labor and capital