econ exam 4

Behind the Supply curve

there is a profit maximizing firm

If Q= 20 L + 50 K. Also, PL=3, PK=2, C=1800 then the profit maximizing combination of K and L is

K=900 and L=0

Which of the following is NOT equal to the Slope of the Isoquant:

Change in L / Change in K

If the consumption of one good is reduced, how must a consumer alter his consumption of another good in order to remain indifferent between two bundles?

He must increase his consumption of another good.

If Q= 10 L + 40 K. Also, P L=1, P K=5 then we know that the

Isoquant is steeper than the Isocost

If MPK/P K < MPL/P L, then to be at profit maximizing choice of K and L

K must decrease and L has to increase

If MPK/PK > MPL/PL, then to be at profit maximizing choice of K and L

K must increase and L has to decrease

Which of the following is completely correct

MRTS = Slope of Isoquant = DK/DL

Which of the following represents the problem of the firm

Maximize P f(K,L) - (P L L + P K K) choosing L and K

Which of the following represent an production function where labor and capital are the perfect substitutes?

Q =7L + K

Which of the following is completely correct

Slope of Isoquant = MPL/MPK

The income and substitution effect help us understand that a sales tax is

bad because they distort the relative prices faced by the consumer

Beer is a normal good. The price of beer increases, then we know that

both income and substitution effect show a negative change in the amount of beer consumed.

At the point of the optimal input combination, the marginal rate of technical substitution (MRTS) __________________ the ratio of the pricds of the inputs.

equals

For a well-behaved Isoquant, at the point of the optimal input combination, the marginal rate of technical substitution (MRTS) __________________ the ratio of the prices of the inputs.

equals

One way to look at the firm's profit maximizing choice of L and K is as one in which the additional output

from the last dollar spent on K and L is the same

Isocost curves farther away from the origin have __________ costs.

greater

Which of the following is NOT a feature of Isoquants?

have a positive slope

One way to look at the firm's profit maximizing choice of L and K is as one in which the addtional output from the last dollar spend

in K and L is the same

An Isoquant

is a curve that shows all the combinations of labor and capital that yield the same amount of output

In order to produce any given amount of output in the least-cost way, choose the combination of inputs that is located on the lowest ___________ curve ___________ to the ___________ associated with the desired level of output.

isocost, tangent, isoquant

If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:

isoquant

In a well-behaved Isoquant when the firm has a lot of capital

labor is a good substitute for capital

A consumer consumes two normal goods, coee and chocolate. The price of coee rises. The income eect, by itself, suggests that the consumer will consume

less coffee and less chocolate.

Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively

less expensive, so the consumer buys more Pepsi.

If goods A and B are complements, an increase in the price of A will result in

less of good B sold.

When MPK/PK = MPL/PL,

one more dollar spent on labor generates the same additional output as one more dollar spent on capital

A consumer chooses an optimal consumption point where the

rate at which the consumer is willing to trade one good for another equals the price ratio.

Any point on the Supply curve

represent is a profit maximizing level of Labor, Capital and Output for the firm

The negative of the inputs price ratio is represented by the _________ of an isocost curve

slope

The negative of the inputs price ratio is represented by the _________ of an isocost curve.

slope

Suppose electricity (E) can be produced with coal (C) or gas (G) to operate steam turbines (T). Suppose gas is more efficiently burned than coal but that they are otherwise perfect substitutes. The isoquants between gas and coal will be

straight lines

The substitution effect is

the change in demand due to changes in relative prices due to a price change of the good

We now know that the Supply curve represents

the decisions of a cost minimizing firm

The marginal product of labor is defined as

the extra output produced by employing one more unit of labor while holding other inputs constant.

When the price of an inferior good increases,

the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good.

Higher education is a normal good. If its price falls,

the income effect is positive.

MPK/P K > MPL/P L, means that

the last dollar spent of capital generates more output than the last dollar spent on labor

MPK/PK < MPL/PL, means that

the last dollar spent of labor generates more additional output than the last dollar spent on capital

MPK/P K represents

the output obtained from the last dollar spent on capital

MPL/PL represents

the output obtained from the last dollar spent on labor