Classical Macroeconomics: Output and Employment ( CH-3)

Question 1

What is The Production Function Equation

Answer 1

y= F(Kbar, N)
where,
y= output
Kbar= stock of capital(plant and equipment)
N= Quantity

Question 2

What does the production function indicate

Answer 2

The production function, y F(Kbar, N), indicates the output that would be produced by the efficient utilisation of each level of labor input

Question 3

Discuss constant returns, diminishing returns, and negative returns in the production function

Answer 3

The straight line (constant slope) portion of the production function exhibits constant returns to scale

where the size of the increases in output declines, as more labour is employed, this portion of the production function exhibits diminishing returns to scale

Negative returns to scale occur when additional labour input results in decreased total outputs

Question 4

Discuss the Marginal Product of Labour( MPN)

Answer 4

The addition to total output due to the addition of a unit of labour(The quantity of other inputs being held constant)

mpn change in y/ change in n