TUTORIAL2 Chapter 7 Part 1 Key Concepts and Equations: Production Isoquant: shows all combinations of input...
TUTORIAL2 Chapter 7 Part 1 Key Concepts and Equations: Production Isoquant: shows all combinations of input quantities that yield the same level of output. Higher isoquant: higher level of output Marginal Rate of Technical Substitution: MRTS is the slope of the isoquant at any input combination. It tells us the rate at which we must increase the qty of input 2 per unit decrease in qty of input 1. MRTS diminishes as we move down the isoquant from left to...
TUTORIAL2 Chapter 7 Part 1 Key Concepts and Equations: Production Isoquant: shows all combinations of input quantities that yield the same level of output. Higher isoquant: higher level of output Marginal Rate of Technical Substitution: MRTS is the slope of the isoquant at any input combination. It tells us the rate at which we must increase the qty of input 2 per unit decrease in qty of input 1. MRTS diminishes as we move down the isoquant from left to...
Use the graph: Capital Isoquant 2 Isoquant 1 Isocost Labor 50 60 100 8. What is the MRTS between points A and B? 9. What is the MRTS between points B and C? 10. What is the slope of the isocost curve if wages=$300 a week and the rental price of capital is $300 per week? 11. Which isoquant curve represents higher output? 12. If Isoquant 1 represents output of 3000, what is the cost minimizing combination of inputs to...
Assume an isoquant for a fixed level of output equal to ¯y = 1/2x 1 2 1 x 1 3 2 Fix w1 = 1. Show how the cost minimizing bundle changes as w2 moves from 1 to 2. You can graph x1 and x2 on separate graphs as a function of w.\
For Question 1-4, use the following information: A firm's production function is gives as: q=3K0.6 L0.4 and its cost minimizing choice of inputs is L=250 and K=400 1. What is the value of MRTS at the firm's cost minimizing choice of input? 2. If the wage that the firm's pay to hire one unit of labor is 10, what is the user cost of capital? (Graph questions) <--- (Really important - please give clear steps and explanation) 3. Write down...
1. Sketch the production isoquant for a production function that takes two inputs (e.g. y = f[l,k]). Show the cost minimizing combination of inputs by adding an isocost line to your sketch. (a) What is the relationship between the trs and the relative price of one input compared to the other at the cost minimizing combination of inputs? (b) What does the assumption of a diminishing technical rate of substitution (trs) mean? (What does a diminishing trs mean imply for...
Suppose a firm produces an output level according to the simple production function: Q = 5 L K, which implies M P L = 5 K and M P K = 5 L. Further suppose a firm must pay labor (L) a wage rate (w) of $5 per unit, and the rental rate (r) on capital (K) is $25 per unit. A. Find the marginal rate of technical substitution. B. Write the equation for the isocost line. What is the...
Are the following statements True / False / Uncertain? Support your answer with explanation. 1. It is even better for a perfectly competitive firm to produce output even though it is loosing money. 2. If the output elasticity of the total cost is less than one, we have disec- onomies of scale. 3. Inputs are perfect substitutes when one input can always be substitutes for the other on fixed terms and thus corresponding production function is called fixed-proportion production function....
1. According to the law of diminishing returns, the: a. total product of an input must eventually decline b. average produt of an input must always increase c. marginal product of an input must eventually decline d. marginal product of an input must eventually rise 2. An isocost line shows the: a. input combinations that can be purchased with a given outlay of funds b. costs of inputs needed to produce along an isoquant c. costs of inputs needed to...
10 20 30 40 Labor 21.4 (0) Earl sells lemonade in a competitive market on a busy street corner in Philadelphia. His production function is f( ) = where output is measured in gallons, T is the number of pounds of lemons he uses, and is the number of labor hours spent squeezing them. Me (a) Does Earl have constant returns to scale, decreasing returns to scale. or increasing returns to scale?_ decreasing TOY Where w, is the cost of...