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Write the equation for output as a function of the capital stock.

Explain what is meant by the average productivity of capital (APk) (or the inverse of the capital-output ratio (kq = K/Q) and explain why it can be restated as a function of the productivity of labor (ap) and the capital-labor ratio (k).

Explain the determinants of the productivity of labor and the capital-labor ratio.

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Joshua Stredder
Joshua StredderLv10
29 Sep 2019

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Related questions

In theory, differences in output across economies and overtime might be the result of differences in either capital input, labor input, or productivity. The evidence points clearly to productivity as a more likely and powerful source of growth differences. Which aspects of the Solow growth model help to explain why the inputs of capital and labor contribute little to the growth of output, relative to productivity?

Labor productivity is determined by the amount of human and physical capital available for the labor force.

Answer the following questions:

  • Which factors make the strongest impact on your personal labor productivity, or that of your closest family member, if you don't have a job?
  • What actions can a person take to increase his or her labor productivity?
  • Does capital formation affect labor productivity? Explain with examples

Consider an economy that uses two factors of production, capital (K) and labor (L), to produce two goods, good X and good Y. In the good X sector, the production function is X = 4KX0.5 + 6LX0.5, so that in this sector the marginal productivity of capital is MPKX = 2KX-0.5 and the marginal productivity of labor is MPLX = 3LX-0.5. In the good Y sector, the production function is Y = 2KY0.5 + 4LY0.5, so that in this sector the marginal productivity of capital is MPK = KY-0.5 and the marginal productivity of labor is MPLY = 2LY-0.5. Finally, let the total endowment of capital in this economy be K = 800, the total endowment of labor be L = 1200, the price of good X be PX = 3 and the price of good Y be PY = 6.

Suppose now that the price of good X relative to the price of good Y increases. What will happen to the quantities produced? Are workers better off or are capital owners better off? Explain.

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