Chapter 3, Productivity, Output, and Employment
Real GDP = Q = Y = A x F (K,N) Y = A x K X N
Note: Y, K and N can be measured directly, but A can be calculated indirectly.
Cobb – Douglas Production Function:
A = Y/F(K,N) A = Y/K x N
N = labour
K = Capital
Y = Output
The shape of the production function, Y = A x K x N
To show the production function graphically, we hold one of the 2 factors of production constant and
graph the relationship between output and the other factor.
Y = A x K x N 0.7
Y = (16.8) x (K ) x (15.70)
Y = 115.75 K
If K = 1,798, Y = 115.75 (1,798) then, Y = 1,098 billions
Features of the production function:
1. Starts from the origin
2. Slopes upward (positive), Change in output due to a one unit change in capital.
- Marginal product of capital, MP K