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ECON 330D1 (20)
Lecture 4

Econ 330 Lecture 4 September 18 2012.docx
Econ 330 Lecture 4 September 18 2012.docx

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School
McGill University
Department
Economics (Arts)
Course
ECON 330D1
Professor
Daniel Barczyk
Semester
Fall

Description
Econ 330 Lecture 4 September 18 2012 Y= F(K,L) Production Function + Factors of Production 2 Economic Profit = Y – MPL *L– MPK * K MPL *L= Total Wage MPK*K = Total Return MPL = on graph equals w/p CRS z*y Because we are interested in the division of national income Y= MPL *L +MPK *K + Economic profit By Eulers theorem a CRS prod function can be written as Y= FL(K,L)=MPL*K+MPL*L  Economic profit are zero In reality firms own capital, people own firms Accounting profit = economic profit + mpk *k The Cobb- Douglas production function Observation: the division of national income between capital and labor had been roughly constant over a long period of time Sales Labor Capital Constant factor shares capital income= ∞y increases capital share of income 1Output 2 K = Kbar, L= Lbar Douglas asked cobb what production function would produce constant factor shares if factor shares . if factor always earned their marginal products 3Y= F(K,L)=AK L 1- 1. It has CRS ∞ 1-∞ A(zK) (zL) Az K z 1-L 1-∞ ∞ 1-∞ Z*AK L Y 2. MPL = (1∞) AK ∞ L-∞ a ∞ MPL = (1-∞) AK L /L MPK= ∞ * y/k 1-∞ a-∞ MPK- ∞ak L MPK*K= ∞ *y
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