Question

Please show as much work and explanation as possible, thank you so much!

Part 2: For each question below, select all answers that are correct (there may be more than one correct answer, there may be none). Each potential answer is worth 2 points. MPK then we can conclude that: PK MPL 1. If PL (a) The firm should use more capital (K) and less labor (L) (b) The firm is not operating on its Long Run Average Cost Curve. 2. In a two-dimensional input space with L on the horizontal axis and K on the vertical axis, which of the following statements concerning isoquants are true? (a) Isoquants are downward sloping because more inputs generates more outputs. (b) Isoquants do not cross because more inputs generates more outputs. (c) The slope of isoquant is equal to the ratio of input prices when marginal product of labor is maximized 3. Which ones of the following statements about the firm's short-run productivity are true? (a) Marginal cost curve intersects average variable costs curve at its minimum. (b) As the marginal product of labor decreases, marginal cost increases. (c) If the marginal cost is below average variable cost, then average variable cost is increasing (d) When average variable cost achieves its minimum, average total cost must be increasing

Answer 1

1.

Ans: None is correct.

Explanation:

• Since marginal product per price is more in case of labor, firm should use more of labor.
• Operating at long run average cost implies both ratios are equal which is not the case.

2.

Ans: None is correct.

Explanation:

• Isoquants are downward sloping because increasing one input requires decreasing other input to keep output same.
• Isoquants do not cross because it violates monotonicity in difference ranges.
• Slope of isoquant is equal to ratio of input prices when output is maximized.

3.

Ans: a and b are correct.

Explanation for incorrect ones:

• If marginal cost is below average variable costs, average variable cost fall because before MC intersects AC at it minimum, AC continues to fall to reach minimum.
• At minimum of AVC, AC must be falling because MC rises and is yet to intersect AC at its minimum too.

If you are satisfied with the answer, please provide a positive rating. Feel free to comment in case of queries.

Have a nice day ahead!