Economics 2152A/B Study Guide - Midterm Guide: Farad, Externality, Competitive Equilibrium
10 Apr 2015
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Changes in real wage: income and substitution effect. Production function five key properties: constant returns to scale, small firm is just as efficient as a large firm, y increases with increases in either the labour input or the capital input, mpn decreases as n increases, mp curve is slop of production function, positive, slopes downward, mpk decreases as k increases, same graph, mpn (labour) increases as k (capital) increases, shift up of mp curve. Change in total factor productivity (z) on the production function: more output produced given capital and labour shift production function up, mp of labour increases (slope is higher at z2) Profit maximization problem of the representative firm: assuming k is fixed, when the firm maximizes profits, the marginal product of labour equals the real wage. Chapter 5 closed, one-period model: closed economy: no international trade, includes consumer, firm and government, one period: no saving or investment decisions.
