Econ Section 2
An isoquant is defined in economics as a line indicating all combinations of two variable inputs that will produce
the same level of output
If the price of the input on the horizontal axis increases, then
the slope of the isocost line will become steeper
the cost minimizing combination of inputs can be found at
the tangency point of the isoquant and isocost line
The slope of the isorevenue line is
-P1/P2
Technological change will affect the
PPF
which equation best represents an isoquant
Y = F(A,K | L,M)
an isorevenue line
all of the following
perfect substitutes
are used separately, one or the other
labor and agrochemicals are
both complements and substitutes in production, depending on the situation
managers of agribusiness firms can substitute inputs in the production process to maintain output
both in the short run and the long run
movements along the PPF are an indication of
the change in efficient levels of production
Nuts and bolts are
complements in production
A typical isoquant is
convex to the origin, reflecting imperfect substitutes
Capital intensive production techniques are most likely to be found in
high income nations
two isoquants can never
intersect
the isorevenue line
line depicting all combinations of two outputs that yield a constant level of revenues
an isorevenue line is
linear
labor-intensive production techniques are most likely to be found in
low income nations
A point located inside the PPF is
not efficient, but attainable
in the graph of a PPF, there are
outputs on both axes
If the price of an output increase, ceteris paribus
producers will substitute into the production of that good
If a production possibility frontier intersects an isorevenue line at two points, then
profits could be higher on a higher isorevenue line
a business firm will choose which outputs to produce based on
relative prices
coke and pepsi will purchase sucrose or fructose based on
relative prices
a PPF shape is derived from
scarcity
To find the profit maximizing input combination, a firm should
set the slope of the isocost line equal to the slope of the isoquant line
Technological change in the good located on the vertical axis
shifts the PPF up
an isorevenue line depicts all combinations of two products
that can be sold for the same total revenue
to determine the revenue-maximizing combination of outputs to produce, a manager must know
the MRPS and the product price ratio
in equilibrium:
the cost minimizing combination of inputs is purchased; the MRTS - price ratio; the slope of the isoquant is equal to the slope of the isocost line
the traditional convex isoquant that is associated with agricultural production processes gets its shape from
the diminishing returns in the production function
If all the resources are used to produce a single output, then
the firm is located on the axis that corresponds to that output
A manager can minimize production costs by operating at a point where
the isoquant is tangent to the isocost line
To determine the profit maximizing level of production with two inputs, the manager must know
the marginal rate of technical substitution and the price ratio
the MRPS is
the rate at that one output must be decreased as production of the other output is increased