Ch 5

Imperfect substitutes

A form of resource (input) substitution where larger and larger amounts of a second variable resource (input) are required to replace equal incremental reductions of the first resource (input) while maintaining the same level of output

perfect substitutes

A form of resource (input) substitution where one input can be exactly substituted for another in production

Perfect complements

A form of resource (input) substitution where two inputs can only be used in production in a fixed ratio and cannot be substituted for one another

isoquant

An ____ is the graphical equivalent in production economics to what the indifference curve is to consumption economics

product-product relationship

Another choice facing the producer is what enterprise (business) or what combination of enterprise will be the most profitable for the firm. This relationship between enterprises is referred to as the ________________

greater use of one input to greater use of the other input

For inputs that are substitutes, the MRTS changes as one moves from ______.

factor-factor relationship

In many cases, a producer faces the decision of varying multiple inputs/resources to produce a given output. This relationship between resources is known as the _____

convex

Isoquants for imperfect substitutes are _____ to the origin.

"right-angle"

Isoquants for perfect complements have _____ shapes.

straight

Isoquants for perfect substitutes are _____ lines.

isocost curve

Similar to the budget line in consumer economics, the ____ identifies all the combinations of the two given inputs that can be afforded to produce a given level of output

concave

The PPC is ____ to the origin

◦ Law of diminishing returns. ◦ Input suitability - some inputs are better suited for the production of one product than another.

The PPC is concave to the origin. This is for two main reasons:

expansion path

The _____connects the LCC points along the production surface. It shows how input proportions change as output expands.

feasible set.

The firm can produce any combination of products on the PPC, or anything within the boundaries of the PPC. The area inside of and including the boundary is the _____

diminishing returns

The law of _______can be used to explain the shape of isoquants.

Resource Substitution

The technical relationship that occurs when one input can be substituted for another in production while yielding the same level of output

slope of the isoquant

The value of the MRTS is the ____ at any point along the isoquant.

Isoquant

The_______ is the graphical representation of the two variable input production function

expansion Path

The__________ connects the most profitable points for each of a number of PPCs.

the Marginal Physical Product (MPP) the magnitude change of that reduced input

When we reduce the use of one input without increasing the other input in production, we reduce the level of output by _____ of the reduced input multiplied by _____.

marginal rate of technical substitution

____ can be interpreted as the amount of X2 that X1 can replace without changing output

Expansion Path

_______ Shows the revenue (and profit) maximizing proportions of Y1 as the firm expands or contracts

Isoquant

_______ shows all combinations of the two variable inputs that can be used to produce a given quantity of output

negative

isocost curve has a ___ slope

indifference curve bundles that caused same utility

marginal rate of substitution is analogous to ____

Marginal Rate of Product Substitution (MRPS)

measures the differing rates at which either product will replace (substitute for) the other along the production possibilities curve

the slope of production possibilities curve equals the slope of the isorevenue line

optimal combination of the two products to produce (the level that maximizes output) occurs where ___

Production Possibilities Curve or Frontier (PPC/PPF)

shows all possible combinations of two products that can be produced given the set of resources in the firm's control

isorevenue line

shows all possible combinations two products sold that will bring the same total revenue

least cost combination

the _____ occurs where the isoquant is tangent to the isocost line

isocost curve

the _______ identifies all the combinations of the two given inputs that can be afforded produce a given level of output

◦ They are downward sloping. ◦ They cannot cross one another. ◦ They are convex to the origin. ◦ Isoquants that are located further upward and to the right represent higher levels of production.

the following are properties of isoquants. (four)

budget line

the isocost line is the production analog to the ____ in the consumer model

output prices

the optimal combination of the two products to produce (the level that maximizes output) is to produce where MRPS is equal to the ratio of ___

marginal rate of technical substitution

the rate at which one resource can be substituted for another without changing output

slope of isorevenue line

the ratio of two outputs = ___

equivalent

to minimize the cost of producing a given level of output (or to maximize output from a given cost outlay) , the rate of substitution between the two inputs is ______of the ratio of prices of the two inputs

MRTS to the price ratio

to minimize the cost of producing a given level of output (or to maximize output from a given cost outlay) we equate the ___ to _____