I don't understand its importance in this production function.
I know that the productivity parameter is A in the function: F(K;L)=AK^α L^(1-α)
So what could it be?
Thank you!
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2$\begingroup$ Please clarify your specific problem or provide additional details to highlight exactly what you need. As it's currently written, it's hard to tell exactly what you're asking. $\endgroup$– GiskardSep 8, 2022 at 7:08
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1 Answer
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The parameter $A$ typically refers to total factor productivity which is a measure of how much output is created per unit of input.
If you rearrange your equation you can see this more clearly:
$$A=\frac{F(K,L)}{K^aL^{1-a}}$$
Naturally as $A$ grows so will your output. In "words", $A$ measures the portion of your production that $K^aL^{1-a}$ does not explain.
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1$\begingroup$ Hi, thankyou for your answer! However, I don't think that A corresponds to the marginal productivity of a factor. Am I wrong? $\endgroup$– studentSep 8, 2022 at 14:14