Ch 5
Imperfect substitutes
A form of resource (input) substitution where larger and larger amounts of a second variable resource (input) are required to replace equal incremental reductions of the first resource (input) while maintaining the same level of output
perfect substitutes
A form of resource (input) substitution where one input can be exactly substituted for another in production
Perfect complements
A form of resource (input) substitution where two inputs can only be used in production in a fixed ratio and cannot be substituted for one another
isoquant
An ____ is the graphical equivalent in production economics to what the indifference curve is to consumption economics
product-product relationship
Another choice facing the producer is what enterprise (business) or what combination of enterprise will be the most profitable for the firm. This relationship between enterprises is referred to as the ________________
greater use of one input to greater use of the other input
For inputs that are substitutes, the MRTS changes as one moves from ______.
factor-factor relationship
In many cases, a producer faces the decision of varying multiple inputs/resources to produce a given output. This relationship between resources is known as the _____
convex
Isoquants for imperfect substitutes are _____ to the origin.
"right-angle"
Isoquants for perfect complements have _____ shapes.
straight
Isoquants for perfect substitutes are _____ lines.
isocost curve
Similar to the budget line in consumer economics, the ____ identifies all the combinations of the two given inputs that can be afforded to produce a given level of output
concave
The PPC is ____ to the origin
◦ Law of diminishing returns. ◦ Input suitability - some inputs are better suited for the production of one product than another.
The PPC is concave to the origin. This is for two main reasons:
expansion path
The _____connects the LCC points along the production surface. It shows how input proportions change as output expands.
feasible set.
The firm can produce any combination of products on the PPC, or anything within the boundaries of the PPC. The area inside of and including the boundary is the _____
diminishing returns
The law of _______can be used to explain the shape of isoquants.
Resource Substitution
The technical relationship that occurs when one input can be substituted for another in production while yielding the same level of output
slope of the isoquant
The value of the MRTS is the ____ at any point along the isoquant.
Isoquant
The_______ is the graphical representation of the two variable input production function
expansion Path
The__________ connects the most profitable points for each of a number of PPCs.
the Marginal Physical Product (MPP) the magnitude change of that reduced input
When we reduce the use of one input without increasing the other input in production, we reduce the level of output by _____ of the reduced input multiplied by _____.
marginal rate of technical substitution
____ can be interpreted as the amount of X2 that X1 can replace without changing output
Expansion Path
_______ Shows the revenue (and profit) maximizing proportions of Y1 as the firm expands or contracts
Isoquant
_______ shows all combinations of the two variable inputs that can be used to produce a given quantity of output
negative
isocost curve has a ___ slope
indifference curve bundles that caused same utility
marginal rate of substitution is analogous to ____
Marginal Rate of Product Substitution (MRPS)
measures the differing rates at which either product will replace (substitute for) the other along the production possibilities curve
the slope of production possibilities curve equals the slope of the isorevenue line
optimal combination of the two products to produce (the level that maximizes output) occurs where ___
Production Possibilities Curve or Frontier (PPC/PPF)
shows all possible combinations of two products that can be produced given the set of resources in the firm's control
isorevenue line
shows all possible combinations two products sold that will bring the same total revenue
least cost combination
the _____ occurs where the isoquant is tangent to the isocost line
isocost curve
the _______ identifies all the combinations of the two given inputs that can be afforded produce a given level of output
◦ They are downward sloping. ◦ They cannot cross one another. ◦ They are convex to the origin. ◦ Isoquants that are located further upward and to the right represent higher levels of production.
the following are properties of isoquants. (four)
budget line
the isocost line is the production analog to the ____ in the consumer model
output prices
the optimal combination of the two products to produce (the level that maximizes output) is to produce where MRPS is equal to the ratio of ___
marginal rate of technical substitution
the rate at which one resource can be substituted for another without changing output
slope of isorevenue line
the ratio of two outputs = ___
equivalent
to minimize the cost of producing a given level of output (or to maximize output from a given cost outlay) , the rate of substitution between the two inputs is ______of the ratio of prices of the two inputs
MRTS to the price ratio
to minimize the cost of producing a given level of output (or to maximize output from a given cost outlay) we equate the ___ to _____
