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NOTES ON THE NEOCLASSICAL APPROACHES

TO TECHNOLOGICAL CHANGE

Alessandro Sterlacchini

PRODUCTION FUNCTION

Implicit form Q = A f(X) X= x1, xn

Time suffixes are omitted for simplicity: however, we are interested in how Q increases over time

when inputs change.

SIMPLIFIED APPROACH

Q = A f(K, L)

This implies that Q should be a measure of value added (rather than total output).

Value added = at firm and industry level

GDP = at country level (aggregate production function)

COBB-DOUGLAS PRODUCTION FUNCTION

Q =AKL

Cobb, C. and P. Douglas (1928) A Theory of Production,AER.

Charles Cobb was a mathematician. Paul Douglas (1892-1976) was an economist (University of

Chicago) but also a politician. He served as a Democratic U.S. Senator from Illinois from 1949 to

1967.

LONG RUN ANALYSIS: THERE ARE NOT FIXED FACTORS OF PRODUCTION

1. CHOICE OF THE OPTIMAL COMBINATION (TECHNIQUE) OF K AND L: THATMAZIMIZING THE FIRM PROFITS (maximum output for given costs or minimum costs

for a given output)

2. ECONOMIES OF (OR RETURNS TO) SCALE3. TECHNOLOGICAL CHANGE

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COBB-DOUGLAS PRODUCTION FUNCTION

Q =AKL

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