ECON 291 Chapter 3: Chapter 3 - Productivity, Output and Employment
20 Oct 2011
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Econ291 chapter 3: productivity, output and employment. In this section we will examine the factors that cause production to occur. Productivity refers to how effectively they are used. We typically expect diminishing returns to production from the quantities of inputs. Generally, capital and labour are the most important factors of production. Economists usually describe the production function mathematically as: A = a productivity parameter (total factor productivity anything besides capital and labour) F = the function relating (k, n) and y. One common functional form of f(k,n) is the cobb-douglas production function: Generally, a value of =0. 36 seems to fit the data quite well. The parameter a is known as total factor productivity since it is not directly related to either capital or labour. For example, an increase in oil prices might decrease a because machines are more expensive to run and so are run less, even though capital and labour are constant.
