Supply Constraint

The Production Function Approach

A fundamental tool for economists, a production function illustrates an economy’s supply constraint in terms of two factor inputs, namely capital and labor. Total factor productivity serves to summarize how efficiently inputs are transformed to outputs. Marginal products of both capital and employment are positive but diminishing.

$$ Y=A*f(K, L) $$
where :

• $Y$ := Total Output 
• $A$ := Total Factor Productivity 
• $K$ := Capital Value of Plant/Equipment 
• $L$ := Labor- Number of Workers Employed 

IMFx: MDSx Macroeconomic Diagnostics

Macroeconomic Diagnostics

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