A model of production

Question 1

What does the simplified economic model with ice cream production represent?

Answer 1

It represents a closed economy where ice cream is the only consumption good, used to demonstrate how labor (L) and capital (machines, K) interact to produce goods

Question 2

The Production Function

Answer 2

Question 3

what is F (K , L)

Answer 3

a generic function describing how inputs yield output

Question 4

To calculate how much Y from K and L, we use:

Answer 4

Cobb-Douglas production function

Question 5

Cobb-Douglas production function

Answer 5

Question 6

Generic Cobb-Douglas production function:

Answer 6

Question 7

Returns to Scale

Answer 7

Question 8

Marginal Benefit of Hiring a Worker → additional revenue

Answer 8

Question 9

Marginal Cost of Hiring a Worker →

Answer 9

wage

Question 10

Marginal Cost = Marginal Benefit for Labor:

Answer 10

Question 11

Marginal Cost = Marginal Benefit for Capital:

Answer 11

where r is the price of capital

Question 12

Producer’s Profit =

Answer 12

Question 13

Given p, r , and w , the producer chooses K and L to maximize its profit:

Answer 13

Question 14

Supply and Demand in the Capital and Labor Markets

Answer 14

Question 15

the main 5 equations

Answer 15