Econ 303 Test 3
At the optimum combination of two inputs
-the slopes of the isoquant and isocost curves are equal -costs are minimized for the production of a given output -the marginal rate of technical substitution equals the ratio of input prices
Which of the following is NOT an expression for the cost minimizing combination of inputs? A) MRTS=MPL(marginal product of labor)/(Marginal product of capital) B) MPL/w=MPK/r C) MRTS=w/r D)MPL/MPK=w/r
MRTS=MPL/MPK
in a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus,
marginal cost is below average variable cost
the rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the
marginal rate of technical substitution
A firm maximizes profit by operating at the level of output where
marginal revenue equals marginal cost
revenue is equal to
price times quantity
If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the
rate at which the firm can replace capital with labor without changing the output rate
the demand curve facing a perfectly competitive firm is
the same as its average revenue curve and its marginal revenue curve
The law of diminishing returns assumes that
there is at least one fixed input
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
An isoquant
Which is not valid: A) Rising marginal cost implies that average total cost is also rising B)When marginal cost is below average total cost, the latter is falling C) When marginal cost is above average variable cost, AVC is rising D) none of the above
Rising marginal cost implies that average total cost is also rising
The marginal product of an input is
The addition to total output due to the addition of the last unit of an input, holding all other inputs constant
With its current levels of input use a firms MRTS is 3 (when capital is on the vertical axis and labor is on the horizontal axis) This implies
The marginal product of labor is 3 times the marginal product of capital
Which always increases as output increases?
Total cost and Variable cost
if capital and labor are all right angles to each other
capital and labor will be used in fixed productions
The marginal rate of technical substitution is equal to the
change in output/change in labor
the perfectly competitive firms marginal revenue curve is
horizontal
An isocost line reveals the
input combinations that can be purchased with a given outlay of funds
The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because
the firms output is a small fraction of the entire industrys output
if the law of diminishing returns applies to labor than
the marginal product of labor must rise and then fall as employment rises
if the isoquants are straight lines then
the marginal rate of technical substitution of INPUTS is constant
because of the relationship between a perfectly competitive firms demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as
P=MC
When an isocost line is just tangent to an isoquant, we know that
output is being produced at minimum cost
The demand curve facing a perfectly competitive firm is
perfectly horizontal
if current output is less than the profit-maximizing output, then the next unit produced
will increase revenue more than it increases cost
