PRODUCTION FUNCTIONS AND CAPITAL DEPRECIATION,
Abstract
Production functions that determine the shares in output and income 'going' to labor, capital, or land, are basically output functions. Output is the dependent variable and stocks of 'capital,' and of certain other inputs, are the independent variables. This basic relationship--but not net income shares--is independent of the subsequent longevity of the factor inputs. Output isoquants can readily be reinterpreted as constant gross value added curves if the value of the 'throughput' is constant. Accountants and economists can subsequently distinguish net and gross value added isoquants. But output is output and physical. Determination of the most economical capital-to-labor combination requires that the gross cost of these factors, including the cost of capital stock depreciation, be considered. If only net interest and wages are taken to be the cost of capital and labor respectively, these costs must be related to a net value added function, otherwise the supposed 'optimum' will involve too much capital relative to labor. (Author)
Document Details
- Document Type
- Technical Report
- Publication Date
- Feb 16, 1961
- Accession Number
- AD0634199
Entities
People
- Stephen Enke
Organizations
- RAND Corporation