ECON-2006EG Study Guide - Quiz Guide: Marginal Product, Isoquant, Longrun

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Part 3 the solow (neoclassical) growth model. This framework is an advanced version the harrod-domar approach, which now allows for more flexibility and substitution between factors of production. It was developed to analyze developed economies primarily, but it can be just as useful for developing nations. Going back to the isoquant production model, solow recognized a slightly different connection. At point a, million of k and 100 workers combine to produce 100,000 keyboards. Output can be expanded in three different ways. The production can either be moved to point b by keeping k- output and l-output ratios constant at. In that case, the capital-output ratio falls to 1. 8:1. It allows for increases in k or l, to be changed individually, and still give increased output. This model retains from the harrod-domar the assumption of returns-to-scale , which means that doubling l and k leads to a doubling of output economies of scale are not effective here either.

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