Chapter 6 - Econ Test 2

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It is expected that marginal physical product will eventually diminish because...

Production of more output is likely to eventually decline with adding more labor (holding capital constant)

When a relatively large amount of capital is used a large amount can be replaced by a unit of labor, but when

only a small amount of capital is used, one more unit of labor replaces very little capital.

Production function equation

q = f(K,L,M) Letting q represent the output of a particular good during a period, K represent capital use, L represent labor input, and M represent raw materials

The marginal product of labor in the production of computer chips is 50 chips per hour. The marginal product of capital is 100. The marginal rate of technical substitution of hours of labor for hours of machine capital is?

1/2

A widget company firm hires labor and rents machines to produce its output. The hourly wage rate is $10, and the rental rate of machines is $50. In equilibrium, the marginal product of labor is 300 units of output per period. The marginal product of machines is

1500 units of output per period.

A manufacturer of lasers reports that the marginal product of labor is 60 units of output per hour of labor and that the marginal rate of technical substitution of labor for capital is 3/2. The marginal product of capital is

40 units of output per hour of machine.

A firm's production function is given by q = 2KL, where K is capital and L is labor. What is the marginal product of labor when 4 units of capital are employed?

8

When it comes to productivity,

Economists emphasize the change in output reflected in marginal physical product.

The marginal rate of technical substitution (RTS)

Is the rate that capital can be reduced, holding output constant, while using one more unit of labor.

A firm's production function is given by q = 4KL, where q is output per week and K and L are the quantities of capital and labor employed per week. Which of the following combination pairs of K and L lie on the same isoquant? a. K = 2, L = 6 and K = 4, L = 4 b. K = 3, L = 4 and K = 6, L = 2 c. K = 5, L = 2 and K = 1, L = 9

K = 3, L = 4 and K = 6, L = 2

An isoquant map is

a contour map of a firm's production function. All of the isoquants from a production function are part of this isoquant map.

A production function is said to exhibit constant returns to scale if

a doubling of all inputs results in a precise doubling of output.

Technical progress represents

a real savings in inputs

Technical progress is

a shift in the production function that allows a given output level to be produced using fewer inputs.

If doubling all inputs yields less than a doubling of output, the production function is said to exhibit

decreasing returns to scale.

The ratio of total productivity to the total quantity of a variable input being used is

equal to average physical productivity of the input.

The marginal product of labor (MP L ) is the

extra output obtained by employing one more unit of labor while holding the level of capital equipment constant

The marginal product of capital (MP K ) is the

extra output obtained by using one more machine while holding the number of workers constant.

An important question is how

firms choose their level of inputs and outputs. While the choices of inputs will obviously vary with the type of firm, a simplifying assumption is often made that the firm uses two inputs, labor and capital.

Along any isoquant the negative slope become

flatter and the RTS diminishes.

Isoquants record successively _________ levels of output the farther away from the origin they are in a ________________ direction.

higher, northeasterly

A doubling of inputs permits a greater "division of labor" allowing persons to specialize in the production of specific parts. This specialization may

increase efficiency enough to more than double output. But could reverse if firms become to big to manage

If doubling all inputs results in more than a doubling of output, the production function exhibits

increasing returns to scale.

Average physical product is

is simply "output per worker"; calculated by dividing total output by the number of workers used to produce the output.

Marginal Physical Productivity

is the additional output that can be produced by adding one more unit of a particular input while holding all other inputs constant.

Returns to scale

is the rate at which output increases in response to proportional increases in all inputs.

Increasing returns to scale in production means

less than twice as much of all inputs would be required to double output.

The slope of the total product curve measures

marginal product

If increasing labor meant the having to hire more capital the marginal product of labor or capital would be

negative and the firm would be unwilling to hire more of either.

The marginal product of an input is defined to be

the additional output that can be produced by increasing the output by one unit, holding all other inputs constant

An isoquant curve identifies

the different combinations of inputs that can be used to produce a fixed rate of output.

It is likely that the RTS is positive (the isoquant has a negative slope) because

the firm can decrease its use of capital if one more unit of labor is employed.

The particular value of the trade-off between labor and capital depends upon

the level of output and the quantities of capital and labor being used.

It is expected that the marginal physical product of an input will depend upon

the level of the input used.

The negative of the slope of an isoquant is called __________________________________, the amount by which one input can be reduced when one more unit of another input is added while holding output constant.

the marginal rate of technical substitution (RTS)

Production

the rearrangement of existing resources into a new relationship

An isoquant is a curve that shows the various combinations of inputs that will produce

the same (a particular) amount of output.

Technology

the state of arts available to firms for converting existing resources into goods and services

The purpose of a firm is

turning inputs into outputs


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