ECON 102 Chapter Notes - Chapter 3: Production Function, Nominal Interest Rate, Real Wages

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4 Feb 2017
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Public saving: any excess tax revenue from government spending. Production function details how they are able to turn capital and labor into the output. Constant returns to scale: an increase of an equal percentage in all factors of production causes an increase in output of the same percentage. Neoclassical theory of distribution: that the demand for a product relies on the marginal productivity of that factor. Factor prices: the amounts paid to the factors of production. Profit = revenue - labor cost - capital costs. Real wage: payment of labor is measured in units of output rather than in dollars. Keep hiring until mpl equals the real wage. Mpk falls to equal the real rental price. Economic profit: the income that remains after the firms have paid the factors of production. If constant returns to scale then this number is zero. Accounting profit: economic profit and returns to capital. Accounting profit: economic profit and returns to capital are lumped together.

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