ECON 4710 Chapter : Chapter 3 Aggregate Production And Productivity
Document Summary
Firms combine services of capital (k) & labor (l) to produce goods and services. Firm"s production function: short-hand description of relationship between qty of inputs and how productively we use them and max output that can be produced. State of technology (speed and efficiency of machines, management technology) Y = aggregate output & income (real gdp), L = aggregate quantity of labor (number of workers) where. What about factors that affect productivity of k, l? function f: Embodies productivity of k,l & translates a given qty of k & l into y. A = total factor productivity = index that tells us how effectively (efficiently) we use k & l. More efficiently use k & l, greater is a & hence greater is y. Mishkin"s function (function y(k,l) doesn"t change, just a) Measure change of y for given change of k, holding constant l & efficiency w/ which k & l used.
