The concept of production functions along with the factors that cause a shift in the production function and other factors that determine the total output that an economy can produce is to be determined.
Explanation of Solution
Production function explains the relationship between output produced and inputs used in the production process with the given technology.
Mathematically, a production function can be expressed as follows-
Where,
Y = output produced
A= labor productivity measure
K= capital input
L= labor input
The factors that can shift a nation’s production function are as follows-
- Improvement in technology- Any technology advancement leads to efficient production. Labor gets skilled and can produce more using the same amount of inputs. This, in turn, shifts the production function upward.
- An increase in capital stock and labor- Rise in the availability of inputs leads to an upward shift in the production function. As with more inputs, more output can be produced.
The level of factors of production including land, labor, capital, and entrepreneur determine the level of output an economy can produce. Higher the availability of factor inputs, the higher will be the output produced by an economy.
Want to see more full solutions like this?
Chapter 3 Solutions
Macroeconomics
- Sirius XM acquired Pandora, was this about scope or scale economies? How does economies of scale and scope differ, and how is growth in this case created from either an economy of scope or scale?arrow_forwardWhich of the following is an example of capital as a factor of production? Group of answer choices Stocks Bonds money Equipment used by businessesarrow_forwardwhat is micro?arrow_forward
- “An economy which does not have a strong manufacturing infrastructure cannot continue to make required investment on itself. An economy that grows only by service sector means that it is built on sand.” Sony Member and CEO Akia Morito 1992. Do you agree with Akia Morito’s idea?arrow_forwardAn increase in labor productivity means businesses will produce more output with the same amount of labor. Explainarrow_forwardcalculate the most economic quantity to order each time for 2023 (expressed to next whole number)arrow_forward
- Why is it that an agricultural economy like India is rich but the average Indian is poor? Answer briefly using the Law of Diminishing Returns.arrow_forwardGo to a recent issue of The Economist magazine. In the back of each issue is a section called “economic indicators.” That section lists the most recent growth data for a substantial number of countries. Which countries around the world are growing most rapidly according to the most recent data? Which countries around the world are growing more slowly? Flip through the stories in The Economist to see if there is any explanation for the pattern that you observe. Write a brief essay on current general economic conditions around the world.arrow_forwardWhat is productivity? Describe the factors of productivity. Answer must be correct. Answer Briefly.arrow_forward
- What is the relationship between average production and managerial production?arrow_forwardDefine factors of production and describehow they contribute to output.arrow_forwardHolding all factors of production constant except for labor, what happens in an economy when real GDP output increases? The unemployment rate falls and in employment rate increases. The level of technology increases as the economy expands. The level of capital increases as the economy expands. All of the answers are correct.arrow_forward
- Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage LearningBrief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of MicroeconomicsEconomicsISBN:9781305156050Author:N. Gregory MankiwPublisher:Cengage Learning
- Principles of Microeconomics (MindTap Course List)EconomicsISBN:9781305971493Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics, 7th Edition (MindTap Cou...EconomicsISBN:9781285165875Author:N. Gregory MankiwPublisher:Cengage Learning