ECON-exam 2
What type of production function are inputs perfect substitutes?
Linear
APL (average product of L)=
Q/L
under constant returns to scale:
a given percentage change in all inputs cases an equal percentage change in output.
the marginal rate of technical substitution (MRTS) shows..
how many workers can do the job of one computer, keeping output constant
if the graph of MPPK is negatively sloped but is still positive (above x-axis), this means adding more capital:
increases total output, but at a slower rate
if a firm cuts inputs in half, and output falls by more than half, then there are:
increasing returns to scale
if a firm doubles inputs and produces 3 times the output, then there are:
increasing returns to scale
A firm is currently employing 10 workers. The marginal product of an additional worker is 4 units of output per hour. The wage rate for additional workers is $20/hour. The price of the product is $5. The firm would increase profits by:
it should keep the number of workers unchanged. (PxMPPL=w, so 5x4=20)
If the wage rate increases, what will happen to the isocost line?
it will become steeper
if your budget as a manager decreases, what will happen to the isocost line?
it will shift inward
total product begins to fall when:
marginal product is negative
the slope of an isoquant tells us
the decrease in capital necessary to keep output constant when labor increases by one unit.
if capital is fixed, but a firm varies labor...
the firm moves to a new isoquant.
the steeper an isoquant is..
the greater the marginal product of labor relative to that of the marginal product of capital.
if each additional unit of input increases total output at a smaller rate then:
the marginal product curve is negatively sloped
at any given point on the curve, the slope of the total product curve always equals:
the marginals product of the input.
Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should:
use more labor and less capital. (MPPL/MMPK= 8/2 > 4/2
an isoquant represents levels of capital and labor that :
yield the same level of output.
if the graph of a PF which uses only labor is a linear function, then the slope of MPPL is:
zero
If the PF is F(L,K)= KL and capital is fixed at 1 unit, then the marginal product of labor when L=25 is:
1
Given the production function q=4LK, what is the marginal product of labor when capital is fixed at 25?
100
given that the budget is $200 and the price of capital is $40, what is the vertical intercept of the isocost?
5 -> 200/40
if AVC is rising, then MC is ___ AVC
above
with capital on the vertical axis and labor on the horizontal axis, vertical isoquants imply that..
capital is not productive
MPL=
change in Q/ change in L
The marginal product of an input is defined as:
change in total output attributable to the last unit of an input.
returns to scale refers to the change in output when:
all inputs increase proportionately
one way to explain the convexity of isoquants is to say that:
as labor increases and capital decreases, MPL falls while MPK rises.
If we move downward along the isoquant, the MRTS:
decreases
With respect to production, the short run is best defined as a time period:
in which at least one input is fixed.
In the short run, as more labor is hired, output increases at a diminishing rate.
law of Diminishing marginal returns
L-shaped isoquants imply that production requires that the inputs...
must be used together in a certain proportion
isoquants are normally drawn with a convex shape because inputs are :
not perfectly substitutable
if a good is produced only by manual labor, the graph of the isoquant will be:
perfectly vertical
If the last unit of input increases total product we know that marginal product is:
positive
if the last unit of input increases total product we know that the marginal product is:
positive
A production function:
represents the technology available for turning inputs into output.