If the inputs to a production process are perfect substitutes and the marginal rate of technical substitution is equal to the ratio of the prices of the two inputs, the firm can choose from a virtually infinite array of combinations of the two inputs to minimize the costs of producing a given level of output.
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If the inputs to a production process are perfect substitutes and the marginal rate of technical...
1. Assume there is a decrease in the supply of a product produced in a perfectly competitive market. All else constant, in the short run this will cause the profits of firms that produce substitutes for the good in question to increase. True False 2. Because it is a machine, a personal computer should be treated as a fixed input in the typical firm's short-run production function. True False 3. For a monopolist to earn a positive economic profit, price...
Suppose two inputs are perfect substitutes. In order to minimize production costs, the producer will simply have to employ the cheapest input. a. True b. False
QUESTION 4 The slope of an isocost line shows: the ratio of the marginal revenue product of the inputs. O the ratio of marginal product of the inputs. the marginal rate of technical substitution. the ratio of the input prices. the output elasticity of production. QUESTION 5 If the marginal product per dollar spent on capital is less than the marginal product per dollar spent on labor, then in order to minimize costs the firm should use less capital and...
A firm uses only two inputs to produce its output. These inputs are perfect substitutes. Is it true that this firm must have the constant return to scale? If it is true, show the proof. If not, show a counter example.
a firm has a production process in which the inputs to production are perfectly substituted in the long run can you tell whether the marginal rate of technical substitution is high or low or is the future information necessary? discuss
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...
Consider the following diagram, which shows the production isoquants for a cost-minimizing firm with labor and capital inputs. Capital Labor Based on the diagram, which of the following statements are true? Choose one or more: O A. The firm is unable to substitute inputs for each other and maintain constant levels of production. OB. The firm is unable to switch from one output level to another. OC. The firm can switch from one output level to another output level costlessly....
2. Marginal products, RTS, and elasticity of substitution: Consider the following production function: q=k *11/4 a. For some w, y, use the Lagrangean method to derive demand functions by finding the cost-minimizing combinations of k and I in terms of q, w, and y (so the cost function is the objective function, and the production function is the constraint). (10 points) b. What is the rate of technical substitution (RTS) for this function? (5 points) C. Presume that the firm...
4. Consider a production process where capital and labor are perfect complements – two units of capital are required for each unit of labor to produce four units of output. 1) Derive the production function for this production process. 2) If the wage rate is $5 per unit of labor and the rental rate of capital is $8 per unit of capital, how much capital and labor should the firm employ to minimize the cost of producing 100 units? 3)...