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