chapter 6

Question 1

inputs

Answer 1

Productive resources, such as labor and capital equipment, that firms use to manufacture goods and services

Question 2

outputs

Answer 2

amount of goods and services produced by the firm

Question 3

production function

Answer 3

the maximum possible output that can be attained by the firm for any given quantity of inputs

Question 4

production function depedns on

Answer 4

exogenous technological conditions

Question 5

technical efficency

Answer 5

sets of points in the production function that maximizes output given input (labor)

on curve

Question 6

technical inefficency

Answer 6

sets of points that produces less output than possible for a given set of input (labor)

inside line

Question 7

labour requirements funciton is …

Answer 7

inverse of prodcution function

Question 8

total product function

Answer 8

single-input production function

Question 9

increasing marginal reutnrs to labour

Answer 9

increase in the quantity of labor → increases total output at an increasing rate

Question 9

Diminishing marginal returns to labour:

Answer 9

increase in the quantity of labor → increases total output but at a decreasing rate

Question 10

Diminishing total returns to labour:

Answer 10

increase in the quantity of labor → decreases total output

Question 11

marginal product

Answer 11

input is the change in output that results from a small change in an input holding the levels of all other inputs constant

Question 12

marginal product equation

Answer 12

change in Q / change in the input

Question 13

average product of labour equation

Answer 13

Q / L
total output / quantity of input

Question 14

law of diminishing marginal returns states…

Answer 14

marginal products (eventually) decline as the quantity used of a single input increases

Question 15

APL increases in L MPL is ___ than APL

Answer 15

greater

Question 16

APL decreases in L , MPL is ___ than APL

Answer 16

less than

Question 17

APL at max , MPL is ____ to APL

Answer 17

equal

Question 18

marginal product tells us what about the total product hill

Answer 18

how the steepness of hill varies as we change input quanityt

Question 19

isoquants

Answer 19

out all the combinations of inputs (labor and capital) that allow that firm to produce the same quantity of output

Question 20

isoquants are ____ sloping

Answer 20

downward

Question 21

production fucntuons have ____ isoquants

Answer 21

infinite

Question 22

Marginal rate of technical substitution

Answer 22

measures the amount of an input, L, the firm would require in exchange for using a little less of another input, K, in order to just be able to produce the same output as before

Question 23

MRTS equation

Answer 23

MRTS = MPL/ MPK = - delta K / delta L (slope)

Question 24

If both marginal products are positive, the slope of the isoquant is

Answer 24

neg

Question 25

uneconomic region

Answer 25

Isoquants are backward bending MPK < 0 and MPL< 0

Question 26

uneconomic region happens when ...

Answer 26

diminishing total returns to capital

Question 27

elasticity of substitution

Answer 27

measure of how easy is it for a firm to substitute labor for capital

Question 28

% change in MRTSL,K is large, elasticity is

Answer 28

close to 0

Question 29

% change in MRTSL,K is small → elasticity is

Answer 29

large

Question 30

elasticity of substitution, σ, measures how the

Answer 30

capital labour ratio k/lk changes relative to MRTS kl

Question 31

fixed proportion production function characteristics

Answer 31

perf complemtns L -shaped has min in equation Elasticity of substitution is 0 → MRTS goes from infinity to 0 when pass through corner of isoquant

Question 32

linear prod fucntion characteristics

Answer 32

Isoquants are straight lines, MRTS does not change as move along isoquant Elasicitiy of sub must be infinite – perfectly substitutable for each other

Question 33

cobb douglas prod fucntion characterisitics

Answer 33

Form Q = ALaKb A and b are pos constants Nonlinear downward sloping curves elasticity is 1

Question 34

returns to scale

Answer 34

How much will output increase when all inputs increase by a particular amount

Question 35

increasing RTS

Answer 35

1% increase in all inputs results in a greater than 1% increase in outpu

Question 36

constant RTS

Answer 36

1% increase in all inputs results in exactly a 1% increase in output,

Question 37

decreasing RTS

Answer 37

1% increase in all inputs results in a less than 1% increase in output,

Question 38

Labor saving technological progress results in a

Answer 38

fall in the MRTSL,K along any ray from the origin

Question 39

Capital saving technological progress results in a

Answer 39

rise in the MRTSL,K along any ray from the origin