B Capital A 0 C Labour O T B Capital A 0 C Labour Why is the - - PowerPoint PPT Presentation

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Sep 10, 2022 241 likes •284 views

O T B Capital A 0 C Labour O T B Capital A 0 C Labour Why is the PPF bowed out? Example: Cobb-Douglas production functions Y C = K L 1 and Y T = K L 1 , ! where cars are more capital intensive ) >

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A B Capital Labour 0C OT

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A B Capital Labour 0C OT

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Why is the PPF bowed out?

Example: Cobb-Douglas production functions YC = K αL1α and YT = K βL1β , ! where cars are more capital intensive ) α > β Productivity: yC = kα

C and yT = k β T

As we move from textiles to cars kC and kT decline in proportion yC yT = kα

k β

productivity of car production falls relative to that of textiles For every unit of textiles given up, the gain in terms of cars declines

() March 31, 2008 1 / 1