44 votes

Why does Taiwan dominate the semiconductors market?

This is because semiconductors have economies of scale over extremely large number of units produced. Economies of scale mean that the more you produce the cheaper production gets. Many firms will ...
1muflon1's user avatar
  • 55.6k
7 votes

Claiming that food delivery apps are purely rent extraction

In addition to @KennyLJ 's answer, I think it's worth pointing out that your points require some pretty restrictive assumptions about the demand for food delivery. Some individuals might substitute ...
AndrewC's user avatar
  • 1,370
5 votes

Claiming that food delivery apps are purely rent extraction

In my youth, pizza delivery was my way to make money, so I have some understanding of how the economics work in practice. Taking orders is expensive. It takes several minutes and can require that ...
Brythan's user avatar
  • 1,182
5 votes
Accepted

Is Artificial Intelligence a completely new (and underestimated) production factor?

My guess is that it is not a new factor of production, but simply a type of total factor productivity. This is because: factors of production are a stock, which produce services. What is the stock of ...
luchonacho's user avatar
  • 8,591
5 votes
Accepted

Marginal and Average Cost in the Romer Model of Endogenous Growth

The cost minimization problem (in general) is given by: $$ \min_{L_i} \int_0^A p(i) L(i) di \text{ s.t. } \left(\int_0^A L(i)^{\phi}\right)^{1/\phi} = y. $$ where $y$ is the output level. The ...
tdm's user avatar
  • 11.4k
4 votes

Difference between Value-Added TFP and Gross-Output TFP?

Your assumption is correct. Value added is Gross Output-intermediate consumption(inputs). value-added approach is a simple measure that ignores the difficulties of dealing with inter-industry and ...
Mike J's user avatar
  • 1,471
4 votes

Cobb-Douglas production function, given $w$ get $r$ regardless of input levels. Why?

This is a subtle issue. First let's present a numerical example to see the head-scratching riddle. Assume $$\alpha =1/2 \implies Y = K^{1/2}L^{1/2}$$ and that the exogenously given input prices are ...
Alecos Papadopoulos's user avatar
4 votes

Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?

Two very general reasons are: 1) High prices at the beginning target "early adopters" - people that have a higher "willingness to pay" for a new product just to have it first. Early adopters know ...
Alecos Papadopoulos's user avatar
4 votes

Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?

In addition to (intertemporal) price discrimination, there's a parallel process of ramping up production. Especially with tech products, they can have bugs at the beginning, even with all the ...
Dolphin 613 Motorboat's user avatar
4 votes

Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?

I want to flesh out the answers from Alecos Papadopoulos and Bill Clark to make sure it's clear why a firm might want to reduce prices over time—known as intertemporal price discrimination. Suppose ...
Ubiquitous's user avatar
  • 16.9k
4 votes

Increasing returns, implications?

Provided that increasing returns to scale apply over the whole production function of the company it is likely that it would become natural monopoly. For example, Mankiw in Principles of Economics (pp ...
1muflon1's user avatar
  • 55.6k
3 votes

Cobb-Douglas production function, given $w$ get $r$ regardless of input levels. Why?

A clarification: The values $w,r$ are not independent of input combinations: you have already solved for $K/L$. 1) Unless you assume that the price of the output is equal to 1, there is a minor ...
Giskard's user avatar
  • 29.3k
3 votes
Accepted

Factor-augmenting technologies (Acemoglu and Restrepo 2018c)

Chain rule! To make it simple call $\tilde{L} = A_L L$ and $\tilde{K} = A_K K$, so that $$ Y = F(\tilde{K}, \tilde{L}) $$ so that $$ \frac{\partial Y}{\partial L} = \frac{\partial \tilde{L}}{\...
caverac's user avatar
  • 1,216
3 votes

How technology will help economists to do better predictions?

I'm an economist by training who also is a programmer and works with a lot of data scientists, so I've some insight into this area. One of my projects at the Urban Institute is trying to bridge the ...
Jeff's user avatar
  • 176
3 votes

Labour Saving vs. Labour Augmenting - what is the difference?

Consider a Leontief production function: $$ Y = \text{min}(aL,bK) $$ Optimal capital-labour ratio is: $$ \frac{K^*}{L^*}=\frac{a}{b} $$ Labour-saving technical change is such that $a$ increases. ...
luchonacho's user avatar
  • 8,591
3 votes

Proxies for technological change in an economy?

I would say these are some proxies Number of patents Number of published scientific papers Human capital
caverac's user avatar
  • 1,216
3 votes

Factoring Technology into Economics models

Yes, this is pretty standard stuff in economics. First, the simplest models contain it in a hidden form. Supply curves are derived from production functions, and include (marginal) cost of ...
rumtscho's user avatar
  • 264
3 votes

Increasing returns, implications?

It can be shown that a firm with increasing returns to scale (IRTS) and no market power makes a negative profit (and may not be observed at all, in the long run). Conclusion: either subsidies, or ...
Bertrand's user avatar
  • 3,311
3 votes

Increasing returns, implications?

Besides the great answers already given, adding my two cents: A firm ends up being a sole player in the sector when market entry for others is restricted, which may not be guaranteed by IRTS or even ...
Dayne's user avatar
  • 1,725
3 votes

Basic question i guess

fall in price arising from the labor savings The price of a product is usually determined in part by its cost. (This holds in almost all theoretical models without strict capacity constraints, even ...
Giskard's user avatar
  • 29.3k
3 votes
Accepted

Why are production functions linear in technology?

It can, production functions do not need to be linear in technology. Production functions of the form: $$F=AK^{\alpha}L^{1-\alpha}$$ are used because they are simple to work with, have some nice ...
1muflon1's user avatar
  • 55.6k
2 votes
Accepted

Why do developing countries adopt 21st century technology, but stay behind in output per capita?

Probably if you go to almost any country in the world, however poor, you will find considerable use of relatively cheap cutting-edge consumer technology such as smartphones and some more expensive ...
Adam Bailey's user avatar
  • 8,346
2 votes

Understanding Tertiarization of the Economy

I' m not sure its a law, its what has happened because manufacturing productivity has moved faster. Indeed, the robot economy might well get rid of most service jobs and we'll all be making or ...
Fix.B.'s user avatar
  • 2,648
2 votes
Accepted

Is information technology going to turn most "common goods" into private goods?

Many obstacles to converting common goods into private goods are legal or normative rather than technological. For example, the technology necessary for congestion pricing of traffic is long ...
BKay's user avatar
  • 16.3k
2 votes

Labour Saving vs. Labour Augmenting - what is the difference?

From what I understand, labor augmentation is when the labor productivity is increased when coupled with an amplifier such as human capital. Looking at a sample labor augmented production function ...
EconJohn's user avatar
  • 8,305
2 votes
Accepted

Disruptions in Server / Data Center Market

Institutions like banks for many years now keep back-up archives of their data in physical locations owned and operated by other legal entities. This is a standard case of outsourcing to specialists ...
Alecos Papadopoulos's user avatar
2 votes

Have automation and technological advance been shown to have a positive impact on society and the economy or a negative one?

Would you rather work with a tractor or shovel? Would you rather use one hand to work or two?... Mathemathically the formula is: $$EL = \mathrm{GDP}_r$$ That is, efficiency ($/h) times hours ...
Dole's user avatar
  • 456
2 votes
Accepted

Energy saving technology and energy service price

A problem with using energy service prices is that they might reflect competition conditions (e.g. monopoly/oligopoly, or the big six in the UK) rather than the true cost of energy to firms. A ...
luchonacho's user avatar
  • 8,591
2 votes
Accepted

Help with this microeconomics exercise

Given the production function \begin{eqnarray*} F(L) = 10 \sqrt{L} - 2L \end{eqnarray*} marginal product is \begin{eqnarray*} F'(L) = \frac{5}{ \sqrt{L}} - 2 \end{eqnarray*} Since there is no cost ...
Amit's user avatar
  • 8,411

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