ECON 2000 Lecture Notes - Lecture 3: Indonesian Rupiah, Human Capital, Loanable Funds

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amberchinchilla194

20 Aug 2016

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Gdp depends on: (1) factors of production - quantity of its inputs (2) production function - its ability to turn inputs into output. The inputs used to produce goods and services; two most important being capital & labour. Capital (k): tools, machines, and structures used in production. Labour (l): time people spend working; the physical and mental efforts of workers. Assumptions: the economy has a fixed amount of capital & a fixed amount of labour, , factors of production are fully utilized (no resources wasted) If constant returns to scale, y2 = zy1. If increasing returns to scale, y2 > zy1. If decreasing returns to scale, y2 < zy1. Since we assume that the supplies of capital & labor and technology are fixed, output is also fixed. Total output of an economy = its total income: b/c factors of production & production function determine total output, they also determine national income.

Related Questions

You manage a plant that mass-produces engines by teams of workers using assembly machines. The technology is summarized by the production function q = 5 KL, where q is the number of engines per week, K is the number of assembly machines, and L is the number of labor teams. Each assembly machine rents for r = $10,000 per week, and each team costs w = $5000 per week. Engine costs are given by the cost of labor teams and machines, plus $2000 per engine for raw materials. Your plant has a fixed installation of 5 assembly machines as part of its design. a) What is the total cost function for your plant—namely, how much would it cost to produce q engines? What are average and marginal costs for producing q engines? How do average costs vary with output? (Clue: the total cost function should be defined in terms ONLY of output, q) b) How many teams are required to produce 250 engines? What is the average cost per engine? c) You are asked to make recommendations for the design of a new production facility. What capital/labor (K/L) ratio should the new plant accommodate if it wants to minimize the total cost of producing at any level of output q? (Clue: to calculate the MRTS of labor for capital --as the ratio of marginal products of the two inputs—and, afterwards, to equal the MRTS to the ratio of input prices).

crimsonmink954

The law of eventually diminishing marginal returns: (Points : 1)

a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above

The marginal product is defined as: (Points : 1)

a. the ratio of total output to the amount of the variable input used in producing the output
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y
d. None of the above

The rate at which one input X may be substituted for another input Y in a production process, while total output remains constant, is: (Points : 1)

a. the slope of the isoquant curve
b. the marginal rate of technical substitution

c. equal to MPx/MPy

d. all of the above
e. none of the above

Marginal revenue product is: (Points : 1)

a. defined as the amount that an additional unit of the variable input adds to the total revenue
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained
c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained
d. a and b
e. a and c

Marginal factor cost is defined as the amount that an additional unit of the variable unit of the variable input adds to ____________. (Points : 1)

a. marginal cost
b. variable cost
c. marginal rate of technical substitution
d. total cost
e. none of the above

In the Cobb-Douglas production function Q=aL^?1.K^?2 ______________. (Points : 1)

a. the marginal product of labor (L) is equal to ?1
b. the average product of labor (L) is equal to ?2
c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent
d. a and b
e. a and c

The short-run cost function is: (Points : 1)

a. where all inputs to the production process are available
b. relevant to decisions in which one or more inputs to the production process are fixed
c. not relevant to optimal pricing and production output decision facilities
d. crucial in making optimal investment decisions in new production facilities
e. none of the above

Theoretically, in a long-run cost function: (Points : 1)

a. all inputs are fixed
b. all inputs are considered variable
c. some inputs are always fixed
d. capital and labor are always combined in fixed proportions

A linear total cost function implies that: (Points : 1)

a. marginal costs are constant as output increases
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above

Country A is located on a small island that is isolated from the outside world. The country
has one representative consumer, whose preference is represented by:
U(c, l) = ln(c) + ln(l)
There is one representative fi rm in the economy which is owned by the consumer, it produces
one type of good that can be used for consumption or government expenditure using capital
and labour as inputs. The fi rm owns the capital it uses and it's production technology is
represented by
F(K;N) = zK^aN^1-a
where z is the total factor productivity, and a is the capital share of income. The fi rm pays
all of its profit back to consumer as dividend.
The government of country A spend a predetermined G amount of goods to provide public
services, and it taxes consumer through a lump-sum tax t to finance the expenditure. the
government's budget is balanced:
G = t
Now, suppose that the firm cannot change its capital stock, or improve its production technology in the short period, such that z and K are given.
(a) When describing this economy as an macroeconomic model, what is the set of exogenous
variables? What is the set of endogenous variables that can be determined given the set
of exogenous variables using the concept of Competitive Equilibrium?
(b) Defi ne the competitive equilibrium for this economy, be specific about what it is, what
conditions have to be satisfied who solves what problem and etc.
(c) List the set of equations that will be used to determine all of the endogenous variables.
Which four of these endogenous variables are essentials, such that once you know these
four, all other endogenous variables can be obtained easily?
(d) Write down the four equations that can be used to solve for these four essential endogenous variables, and describe where do they come from. Describe in details the steps of
how would you solve for the competitive equilibrium (without actually solving for it ).
(e) Setup the Social planner's problem for this economy. What is the marginal condition
that pins down the planner's choices.
(f) Now, describe what would happen to c, l, and w if the firm had more capital, such
that Knew > Kold.

ECON 2000 Lecture Notes - Lecture 3: Indonesian Rupiah, Human Capital, Loanable Funds

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