ECON 202 Lecture Notes - Lecture 3: Perfect Competition, Factors Of Production, Marginal Product

• School: University of Waterloo
• Department: Economics
• Course: ECON 202
• Professor: Fiona T Rahman

Document Summary

Factor of production: labour (l) and capital (k) *both factors are assumed to be exogenous and fixed over time. Production function: aggregate production function (production function) is a description of how much output, y, is produced for any given amounts of factor inputs: F k l where f is the function that translate k and l into y. Y = 0. 3 k + 2l => constant returns of scale. The cobb-douglas production function incorporates the two ideas: , where a describes the productivity (total factor productivity) Explanation: y = y / l = ak(0. 3) / l (1- 0. 7) = a(k/l)^(0. 3) = a k^0. 3, where k = k/l (capital per person) From the perspective of workers, labor productivity is the amount of output produced per unit of labor; unlike labor productivity, total factor productivity takes into account how productive labor and capital are together. Example: y= trillion, k= trillion, l=100 million workers. , ignore the units, don"t replace it with 0.