Overview¶
We start from the most standard way in which we model how labor and capital are used in production. This involves abstracting from the particularities of the workplace and what happens in it. Instead, we consider the aggregate labor amount, \(L\), and the aggregate amount of capital, \(K\), used in production. In practice this requires a way for us to measure the work hours of different types of people in a single unit. Similarly, we need to account for the presence of machines, structures, vehicles, software and other forms of capital in a single aggregate. These indexes suppress heterogeneity between people and between forms of capital in order to isolate substitution between broad factor classes.
Part of the objective of the task-based production function we develop later in the course is to separate the different types of labor and capital by distinguishing what they do and not just who they are. For now, we start with the aggregate quantities and a description of the technology that combines them to create output.