Producer Theory (LR)

Question 1

Isoquants + how would they look on a diagram?

Answer 1

Describes the possible combinations of factors (L and K), that when used efficiently, generate a given level of output

K on y-axes, L on x-axes, similar to indifference curves

Question 2

What is the gradient of an isoquant known as?

Answer 2

MRTS

Question 3

MRTS?

Answer 3

Describes the change in the units of K required to keep Q constant, following a unit increase in L

Question 4

MRTS formula?

Answer 4

• MPL/MPK

Question 5

Isocost lines?

Answer 5

Describes the possible combinations of inputs that are part of (constitute) a given TC

Question 6

Isocost line formula?

Answer 6

wL + rK, where r = capital rental rate