The Production Function Model

Production Function Model

Video Tutorial - The following videos are designed as a teaching aid for my intermediate level macroeconomics discussion tutorial. All errors are my own.

The production function model will be a building block of models to come in your intermediate macroeconomics course. It relates the production of an economy (aka output, income, or GDP) to how factors (for example capital, labor, energy) are combined.

We'll agree on some functional form of the production function, and this functional form should reflect reality as closely as possible. Hence we'll include assumptions about marginal returns to scale and marginal returns capital and labor. (see Cobb-Douglas production function.)

The production function can also be incorporated into a general equilibrium framework to show our wages and rental rate of capital might be determined in an economy.

1. The Production Function - Introduction

2. Overview of the production function for macroeconomics. Discussion of how this simple model fits into the rest of the course and notation.

3. • Cobb-Douglas Production Function

   • Desiderata, constant returns to scale, decreasing returns to factors.

4. Equilibrium in a (very) simple economy

   • Finding equilibrium wages, rental rate, marginal product of labor and capital.

   • Factor share of income..

5. How well does the model fit reality?

6. Total Factor Productivity.

7. The "A" in the functional form of the Cobb-Douglas Production Function.

Key Concepts: