Answer to Question #193008 in Microeconomics for Narendra

Question

What are the key properties of the aggregate production function?

Explain why these

properties are important for understanding the labour demand and credit demand curves?​

Answer 1

The aggregate production function opens the relationship that how real GDP changes as the real wage rate variations. When all other influences on production remain the same.As it is the technical link between physical inputs and outputs which shows the flow of inputs that will show the production of output in a specific period.

There are important key properties of this function which are as follows:-

Physical capital

Labor

Human capital

Knowledge

Social infrastructure

Natural resources

Physical capital :- it includes machines, production facilities.

Labor:- The number of working hours in the entire economy

Human capital:- it includes human skills and specific profession knowledge in that work force

Knowledge :- there should be basic scientific knowledge of production methods

Social infrastructure:- social, legal and cultural factors

Natural resources:- the availability of these resources effect the function

These factors plays dominant role in determining the labour demand and credit demand curve as both factors influence the flow of input. The real wages rates and labor rates, availability of labour is significant to determine as high rates as well as scarcity of labour will increase the price of output.

The availability of money for machines, tools as well as raw materials influence the flow of production. Thus credit demands supports the processes