chapter 5 Appendix book Flashcards
isoquant curves
curves that generate the same output at each of their points
they are convex
isoquant curves have positive or negative slopes?
negative slopes
they form a convex shape
what do the slopes of isoquant curves represent?
that labor and capital are substitutes in the curves
what does the convex shape of the isoquant curves show?
a given decrease in capital could be accompanied by a increase in labor
and vice versa
on the flatter parts of the curve, what happens when you decrease or increase or certain input?
if on the flat part, you decrease one, you gotta increase a lot the other
this depends of which flat part of the curve
the marginal rate of substation (MRTS) between capital and labor
the decrease in capital permitted by a given increase in labor while output is being held constant
what is the formula of the marginal rate of substitution?
why does this formula show that MRTS is negative?
MRTS = (Delta K / Delta L) · contant Q
to keep Q constant, an increase in K requires a decrease in L, and vice versa
with isoquant curves, if K is held constant, can the same additional amount of labour hours create the same increase in output over and over again?
nah boooy
if K is held constant, youll need more and more labour input to create the same increases in output
isoexpenditure lines
lines that represent different combinations of labor and capital inputs that give the same amount of costs of production
where is the point that is profit maximizing with isoquant curves?
the point that is profit maximizing is the one where the isoexpenditure line is tangent to the isoquant curve
at this point, the slope of the line and the lope of that particular point of the curve are the same
what is the slope of the the isoquant curve?
it is the marginal rate of substitution (MRTS)
what is the equation of the marginal rate of substitution (MRTS) for isoquant curves?
what does this formula explain?
MRTS = - (delta K / delta Q) / (delta L / delta Q)
the reduction of capital required to decrease output by one unit if enough extra labor is hired so that output is tending to increase by one unit
= - (MPL / MPK)
MPL and MPK are the marginal productivities of labor and capital, respectively
= - (W/C)
The slope of the isoexpenditure line is equal to the negative of the ratio W/C
explain the substitution effect in the isoquant curves and shid
if the cost of an input rise, keeping the same amount of that input will mean that we wont be able to produce the quantity of output desired
it will not be tangeant to the curve
so we have to increase overall costs, but we gotta use more of the input that did not increase in price
explain the scale effect in this context?
you got the price of a certain input that increased
instead of using it less often that the other input (all the while increasing price), you reduce overall production
this in turns means that increased costs automatically reduced inputs, and to make it profit maximizing, you reduce the use of the other input as well
before tho, you gotta know you want to reduce overall output
The isoquants of a production function for which the inputs are perfect substitutes are straight lines
true or false
truue
