micro 2
the production function q=L^aK^b
exhibits increasing returns to scale if a+b > a and decreasing returns to scale is a +b <1
the production function q=L+L^aK^b+k
exhibits increasing returns to scale if a+b>1 and decreasing returns to scale if a+b<1
if the production function is represented as q=L^aK^b, the long run average cost curve will be horizontal as long as
a+b=1
if the marginal rate of technical substitution for a cost minimizing firm is 10 and the wage rate for labor is 5 what is the rental rate for capital
.5
when the isocost is tangent to the isoquant then
MRTS=-w/r the firm is producing that level of output at minimum cost the last dollar spent on capital yields as much extra output as the last dollar spent on labor
isoquants that are downward sloping straight lines exhibit
a constant marginal rate of technical substitution
learning by doing is represented by
a decrease in the average total cost curve
the production function q= L+K
always exhibits constant returns to scale
isoquants that are downward sloping straight lines imply that the inputs
are perfect substitutes
in the long run, fixed costs are
avoidable
economic costs of an input include
both implicit and explicit costs
the slope of the isoquant tells the firm how much
capital must decrease to keep output constant when labor increases by one unit
suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. in the long run the firm will experience
constant returns to scale
the long run average cost curve may initially slope downar due to
economies of scale
total cost of purchasing one unit is 50. total cost of producing 2 units is 75. at a production level of 2 units the cost function exhibits
economies of scale
in the short run the expansion path is
horizontal
Q=500L-40/k production function increasing decreasing or constant
increasing
if a firm has constant returns to scale then its expansion path
is a straight line
Isoquants must be thin because we assume production
is efficient
learning by doing will result in
lower long run costs than short run costs
in the long run the expansion path is
not enough information
you would expect to see the strongest effect of learning by doing in industries
producing new product
given labor is on the horizontal axis and capital is on the vertical axis as the price of labor increases the isocost line becomes
steeper
long run averge cost is never greater than short run average cost because in the long run
the firm can move to the lowest possible isocost curve
the steeper an isoquant
the greater is the marginal productivity of labor relative to that of capital
if both the price of labor and capital rise in the same proportion which of the following will occur
the isocost line makes a parallel shift inward
to say that isoquants are convex is to say that
the marginal rate of technical substitution falls as labor increases
why do many people choose to not read manuals included with their new computer
they perceive that learning by doing decreases costs faster than learning by reading
an isoquant represents levels of capital and labor that
yield the same level of output