ECON302 Lecture Notes - Lecture 12: Dissociation Constant, W. M. Keck Observatory, Real Wages
18 May 2016
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Document Summary
Until now, the given capital stock, k, was always fully utilized in production and there was to distinction between the stock of capital and the quantity of capital services used in production. Therefore, the new production function, y = a f( k,l) shows that an increase in raises real gdp, y, for a given technology level, a, capital stock, k, and labour input, l. Looking back at the real profit equation, /p = a f(kd,ld) (w/p)ld (r/p)kd. The maximization of /p requires the mpk to equal r/p, where an increase in r/p reduces kd. An increase in the technology level raises the mpk at a given quantity of capital services, k. For a given stock of capital, k, owners can supply more or less capital services by varying, . One reason to set the utilization rate at less than its maximum value is that increases in tend to raise the depreciation rate, ( = ( ))
