Chapter 6

Question 1

production function.

Answer 1

Mathematical relationship between amount of output and various combinations of inputs

Question 2

Short run

Answer 2

Period of time in which one more inputs used in production cannot be changed

Question 3

Long Run

Answer 3

Period of time when all inputs in production can be changed.

Question 4

diminishing returns.

Answer 4

If the amount of capital is held constant, each additional worker produces less incremental output than the last, and vice versa.

Question 5

Marginal Product

Answer 5

additional output that a firm can produce using an additional unit of an input.

Question 6

Marginal Product of Labor Formula (non-calc)

Answer 6

Change in Quantity / Change in Labor

Question 7

diminishing marginal product

Answer 7

As a firm employs more of one input, while holding all others fixed, the marginal product of that input will fall.

Question 8

Marginal Product of Labor Formula (calc)

Answer 8

Partial derivative of Q with respect to L

Question 9

How to find marginal cost from total cost

Answer 9

MC is derivative of total cost

Question 10

To minimize any equation…

Answer 10

Set = 0 and solve

Question 11

Average Product Formula

Answer 11

Quantity/Labor

Question 12

isoquant

Answer 12

curve representing combinations of inputs that allow a firm to make a particular quantity of output

Question 13

marginal rate of technical substitution

Answer 13

The rate at which the firm can trade input X for input Y, holding output constant

Question 14

MRTSxy

Answer 14

MPx/MPy

Question 15

If an isoquant is relatively straight

Answer 15

inputs are relatively substitutible

Question 16

If an isoquant is relatively curved

Answer 16

inputs are relatively complementary

Question 17

When two goods are perfect substitutes

Answer 17

isoquant is straight

Question 18

When two goods are perfect complements

Answer 18

isoquants at right angles

Question 19

Isocost line

Answer 19

shows all of the input combinations that yield the same cost.

Question 20

Where is cost minimized?

Answer 20

Where isoquant is tangent to lowest isocost line

Question 21

Cost is minimized when (formula)

Answer 21

MPk/r = MPl/w

Question 22

Returns to Scale

Answer 22

Increase in Input when all inputs are increased in the same proportion

Question 23

Constant Returns to Scale

Answer 23

production increases proportionally with inputs

Example: inputs double, outputs double

Question 24

Increasing Returns to Scale

Answer 24

changing all inputs by the same proportion changes output more than proportionally.
Example: inputs double, outputs quadruple

Question 25

Decreasing Returns to Scale

Answer 25

changing all inputs by the same proportion changes output less than proportionally.
Example: quadruple inputs, output only doubles

Question 26

Technological change shifts isoquant

Answer 26

left (inward)