# Shared Flashcard Set

## Details

econ 102 intermediate macro
na
6
Economics
12/13/2010

## Additional Economics Flashcards

Term
 prove constant returns to scale
Definition
 F (2K; 2L) = A(2K)^1/3 (2L)^2/3= A* 2^(1/3)K^(1/3)*2^(2/3)L^(2/3)= 2*AK^(1/3)L^(2/3)= 2F (K; L) :
Term
 why the constant returns to scale is important
Definition
 allows us to model all rms in the economyas if there was just one rm. This is because constant returns to scale impliesthat we can just add all firms up.
Term
 write the problem that a typical firm solves in the production model
Definition
 Max profit (constraint by K, L) is F (K; L) - wL - rK
Term
 firms profit maximization condition
Definition
 produce where MPK=r and hire where MPL=w
Term
 why it is useful to re-written the production function in per-capita terms
Definition
 per-capita output allows for a more useful comparison of output or income across countires. Theaggregate production function is not appropriate because countries with larger populations will typically have greater aggregate output. Per-capita, or average, income, however controls for population size and is therefore a better measure of economic welfare.
Term
 1st period budget constraint
Definition
 c+s = y-t
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