MBA 7220 Chapter 9
The slope of an isoquant
-ΔK / ΔL.
The marginal rate of technical substitution
the rate at which the firm can substitute labor for capital while holding output constant.
Economies of scale can arise because
there is usually a qualitative change in the type of capital equipment employed as the scale of operation increases.
characteristics of an isocost curve
If the price of capital is unchanged and the price of labor increases, the intercept of the isocost curve on the horizontal axis will decrease.
characteristics of an isocost curve
The slope shows the rate at which the firm can substitute labor for capital in the market.
characteristics of an isocost curve
The slope shows the rate at which the firm can substitute labor for capital while holding total cost constant. If the price of capital is unchanged and the price of labor increases, the intercept of the isocost curve on the horizontal axis will decrease.
The Long Run
a firm is making the optimal input choice when the marginal rate of technical substitution is equal to the input price ratio.
Economies of scope
can arise when firms employ common inputs in production
If a firm is producing the level of output at which short-run average cost equals long-run average cost, then
the firm has chosen the cost-minimizing combination of inputs to produce this level of output.
Learning economies differ from economies of scale because
the former involves cumulative production and the latter involves the rate of production per period.