Hi, can anyone please help in interpreting this statement, this is from Schweser:
Under Neoclassical theory,
In the steady state, marginal product of capital (MPK) = alpha * (Y/K) is constant, but marginal productivity is diminishing.
What does this mean? and also when they are talking about marginal productivity, are they referring to marginal productivity of capital or labor? I’m assuming capital.
Please help! Thanks.
Put another way, how can MPK stay constant, but marginal productivity of capital decrease?
Yeah, I didn’t understand this one either.
MPK is total output per unit of capital, The way I see it is that in steady state The marginal cost equals marginal income, so additional capital will not contribute to more profit, so in that point is constant
marginal productivity of capital is total output per worker per unit of capital