ECON 2000 Lecture Notes - Production Function, Dependent And Independent Variables

• School: York University
• Department: Economics
• Course: ECON 2000
• Professor: Mokhles Hossain

Document Summary

Firms, according to the neo classical theory, earn zero economic profit. Cobb douglas production function is a neo classical production function with a unique feature. It gives us constant factor shares such that: = capital"s share of national income = . = labour"s share of national income = 1- . Is a constant between 0 and 1. A is a parameter reflecting the level of technology. Why does the c-d function look like this: it exhibits constant returns to scale. Without which we do not have competitive market: it ensures that the mpl and mpk diminish with l and k, respectively. Otherwise we do not have downward sloping factor demand curves: it generates the euler"s equation. Crts: ( ). in other words, ( ) = y ( ) = zy. Therefore mpk is nothing but the contribution of an additional unit of capital towards output/national income.