The implied value of TFP is equal to the ratio of output per person divided by the capital-to-labor ratio raised to the 1/3 power.
The steady state is defined as the point where capital accumulation, ΔKt, is equal to:
A production function is a mathematical representation of the relationship between inputs and output, i.e. how much output can be produced with any input combination. Replacing K = 25, and L = 64 yields Y = 48.
Economic profit equals total revenue minus payments to all inputs. Accounting profit equals total revenue minus payments to inputs other than capital.
The Cobb-Douglas production function has constant returns to scale because the exponents a + (1-a) sum to 1.
Since the numéraire good is cream cheese, all prices are expressed in tons of cream cheese. Total payments to capital and labor (wL + r*K) are also expressed in tons of cream cheese. In equilibrium the sum of payments to capital and labor is equal to total production.
A country has higher per capita output if capital per person and the productivity parameter are higher. The productivity parameter is higher under better institutions and when technologies are adopted more efficiently.
In a Cobb-Douglas production function, the factor share of income going to each input is equal to the exponent on the input in the production function. T/F
You plot the production function for the United States on a graph with output per person on the vertical axis and capital per person on the horizontal axis. If a shock occurs causing the productivity parameter to increase, the production function would shift upward. T/F
Capital per person explains about one-half of the difference in per capita income between the richest and poorest countries. T/F
equal in the production model, but output per capita is smaller in general.