Using the production function Real GDP = T (L, K), define the term production function and describe what each of the variables (T, L, and K) represents. When graphed with Real GDP on the vertical axis and labor on the horizontal axis, which variable(s) can shift the production function and which variable(s) can cause a movement along the production function?


A production function specifies the relation between technology (T) and the quantity of factor inputs to output or Real GDP. In this production function the relevant inputs are labor (L) and capital (K). With labor on the horizontal axis of the production function, a change in labor would cause a movement along the production function. When technology or capital change, it causes the production function to shift.

Economics

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Economics