ECON 1BB3 Lecture Notes - Lecture 25: Marginal Product, Production Function, Physical Capital
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ECON 1BB3 Full Course Notes
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Productivity: the quantity of goods and services that a worker can produce for each hour of work. Determinants of productivity: physical capital, human capital, natural resources, technological knowledge. Production function: shows how we combine inputs to produce output. Y = a f (k, l, h, n) If a production function exhibits constant returns to scale, then doubling all inputs leads to a doubling of output. 2y = a f (2k, 2l, 2h, 2n) 100y = a f (100k, 100l, 100h, 100n) xy = a f (xk, xl, xh, xn) Marginal product: the extra output produced by increasing an input by 1 unit. Diminishing marginal product: the extra output produced by adding the 19th unit of labour is smaller than the extra output produced by adding the 19th unit of labour. Catch-up effect: poor countries tend to grow faster than rich countries. What can government policy do to raise productivity and living standards: encourage saving (k)