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 economy as if there was just one
rm. This is because constant returns to scale implies that 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
firms profit maximization condition 

Definition
produce where MPK=r and hire where MPL=w 


Term
why it is useful to rewritten the production function in percapita terms 

Definition
percapita output allows for a more useful comparison of output or income across countires. The aggregate production function is not appropriate because countries with larger populations will typically have greater aggregate output. Percapita, or average, income, however controls for population size and is therefore a better measure of economic welfare. 


Term
1st period budget constraint 

Definition

