The Solow model uses output and capital in per worker terms
Added by Walter L.
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It assumes that output is produced by combining capital and labor, and that the economy reaches a steady state where output per worker and capital per worker remain constant. Show more…
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Key Concepts
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Use a simple production function model to explain the relationship between capital per worker and output per worker.
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Economists use production functions to describe how the output of a system varies with respect to another variable such as labor or capital. For example, the production function $P(L)=200 L+10 L^{2}-L^{3}$ gives the output of a system as a function of the number of laborers $L$. The average product $A(L)$ is the average output per laborer when $L$ laborers are working; that is, $A(L)=P(L) / L$. The marginal product $M(L)$ is the approximate change in output when one additional laborer is added to $L$ laborers; that is, $M(L)=d P / d L$ a. For the given production function, compute and graph $P, A,$ and $L$ b. Suppose the peak of the average product curve occurs at $L=L_{0},$ so that $A^{\prime}\left(L_{0}\right)=0 .$ Show that for a general production function, $M\left(L_{0}\right)=A\left(L_{0}\right)$
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