Profits and Wages per Efficiency Units of Labor. Labor and Rental Capital Market Equilibrium. w=MPL R=MPK. Profits. Profit = Y - wL - RK In competitive equilibrium : Profit =0 Why? -- Profit<0 better to shut down production
In competitive equilibrium: Profit=0
-- Profit<0 better to shut down production
-- Profit>0 double profit by doubling inputs and hence production
-- * There is another way to argue that Profit=0 using what is called “Euler’s theorem”, see the last 3 slides of this set.
in a competitive equilibrium profit is zero (if production is subject to constant returns to scale)
Actually not that difficult. If you understand the concept of constant returns to scale AND the concept of a mathematical identity.
for all b>0.