Capital has five characteristics.
- It is productive.
- It is produced (investment requires opportunity cost of more consumption today)
- Its use is limited (rivalry)
- It can earn a return.
- It wears out (depreciates).
- constant returns to scale (i.e. F(zK,zL)=zF(K,L)
- diminishing marginal product (where MPK=f(k+1)-f(k)
Cobb-Douglas production function where
- in the data α = 1/3