It's a shame that he has given them an opening.īut it may be for the best. The other reason why Piketty's choice of jargon is unfortunate is that there are plenty of hacks out there looking to diminish the impact of his work. It's important to avoid confusion because the two terms often rub shoulders in a discussion. The MPK should be understood as units of additional output per unit of additional input, while the MEC is akin to an interest rate (it can be thought of as an internal rate of return). Students are regularly warned not to confuse the marginal product of capital (usually abbreviated MPK) with the marginal efficiency of capital (MEC). The reasons why this pisses me off somewhat are twofold. assuming that the quantities of no other inputs to production change." (I know Wikipedia isn't always reliable, but trust me I can find plenty of better authorities to cite if I need 'em). The marginal product of an input, as Wikipedia tells us "is the extra output that can be produced by using one more unit of the input. "So what" you ask "isn't an author entitled to choose his own terminology?" Well yes, but the name Piketty chose happens to be the name usually given to something quite different. Now I think it's clear that Keynes and Piketty are using the same concept, but giving it different names. The greatest of these marginal efficiencies can then be regarded as the marginal efficiency of capital in general. This gives us the marginal efficiencies of particular types of capital-assets.
#The extra output that the last worker hired adds series#
More precisely, I define the marginal efficiency of capital as being equal to that rate of discount which would make the present value of the series of annuities given by the returns expected from the capital-asset during its life just equal to its supply price. He called it the marginal efficiency of capital: Why do economists do this sort of thing? Keynes gave the world a very useful term for the return which a capital asset offers, expressed as an interest rate.
We then say that the marginal productivity of capital is 5 euros for an investment of 100 euros, or 5 percent a year. Suppose, for example, that in a certain agricultural society, a person with the equivalent of 100 euros’ worth of additional land or tools (given the prevailing price of land and tools) can increase food production by the equivalent of 5 euros per year (all other things being equal, in particular the quantity of labor utilized). But when I came to this, on page 213, I was shaken, not stirred:Ĭoncretely, the marginal productivity of capital is defined by the value of the additional production due to one additional unit of capital. negotiate for the wage level that is consistent with perfectly elastic demand for labor.Like hordes of others I'm reading Capital in the 21st Century and so far I'm very impressed. negotiate for limiting the entry of new workers over time.ĭ. negotiate for the wage level that is consistent with unit elastic demand for labor.Ĭ. negotiate for the maximum wage rate the employer is willing to pay for the number of workers belonging to the union.ī. If union dues are paid as a flat amount per union member employed, the union's strategy will be toĪ. Suppose that the objective of a union is to maximize the total dues paid to the union by its membership. negotiate for limiting the entry of new workers over time.ī. negotiate for a higher than market wage hike every year through collective bargaining.Ĭ.negotiate for the maximum wage rate the employer is willing to pay for the number of workers belonging to the union.ĭ.
negotiate for the wage level that is consistent with unit elastic demand for labor.ī. Suppose that the objective of a union is to maximize the total dues paid to the union by its membership. Now, consider the case where union dues are a percentage of total earnings of the union membership.
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