Aggregate Production Functions with Micro Foundations

  title={Aggregate Production Functions with Micro Foundations},
  author={Craig S. Marcott}
This paper presents a geometric derivation of an aggregate production function from simple Edgeworth exchange and production box diagrams. The production box is shown for two firms, each using labor and capital to produce one of the two goods produced in the economy. Mapping the Pareto optimal combinations of labor and capital into the output space yields a production possibilities curve and a continuum of Edgeworth exchange boxes (for a two-consumer economy). Solving the exchange optimization… CONTINUE READING