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ECO 302 > LN5 > Flashcards

LN5 Flashcards

1
Q

Describes how inputs can be transformed into outputs

A

Production Technology

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2
Q

What are examples of inputs?

A

land, labor, capital, and raw materials

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3
Q

Long-lived inputs such as land, buildings (factories, stores), equipment (machines, trucks, tools)

A

Capital (K)

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4
Q

Human services. Includes managers, skilled workers (with specific training/education), and less-skilled workers

A

Labor (L)

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5
Q

Raw materials (oil, water, wheat); processed products (aluminum, plastic, paper, steel)

A

Materials (M)

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6
Q

What are examples of outputs?

A

cars, desks, books, etc.

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7
Q

Indicates the highest output (Q) that a firm can produce for every specified combination of inputs

A

The Production Function

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8
Q

Shows what is Technologically Feasible when the firm operated efficiently

A

The Production Function

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9
Q

What’s the production function for two inputs?

A

Q=f(K,L)

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10
Q

Q=min(2L,4K) means that K&L are?

A

Perfect Complements

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11
Q

Q=4L+4K means that K&L are?

A

Perfect Substitutes

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12
Q

Q=L^1/2 K^1/4 means that K&L are?

A

Imperfect Substitutes

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13
Q

If technology increases, (more/less) output can be produced for a given level of inputs

A

More

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14
Q

Period of time in which quantities of one or more production factors cannot be changed

A

Short Run (SR)

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15
Q

What is the fixed input in the Short Run?

A

Capital (K)

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16
Q

What is the variable input in the Short Run?

A

Labor (L)

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17
Q

Amount of time needed to make all production inputs variable

A

Long Run (LR)

-because it takes time to buy/lease machines, and/or build/rent factories

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18
Q

Output per unit of a particular input

A

Average Product of Labor (APvL)

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19
Q

Measures the productivity of a firm’s labor in terms of how much - on average - each worker can produce

A

Average Product of Labor (APvL)

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20
Q

Formula for Average Product of Labor

A

APvL = Q/L

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21
Q

Additional output produced when labor increases by one unit

A

Marginal Product of Labor (MPvL)

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22
Q

Assume your course grade is based on 3 equally-weighted exams. You’ve taken 2 exams and your course average is currently 85%. Your third exam is considered your “marginal” exam.

If your score on Exam 3 is:

  1. Greater than 85%, your average will ___
  2. Less than 85%, your average will ___
  3. Equal to 85%, your average will ___
A
  1. Rise
  2. Fall
  3. Remain Constant
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23
Q

If your MPvL > APvL then APvL ___

A

Rises

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24
Q

If your MPvL

A

Falls

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25
Q

If your MPvL = APvL then APvL

A

Remains Constant (doesn’t change)

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26
Q

Slope of a line from the origin to any point on the Total Point Curve

A

Average Product of Labor (APvL)

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27
Q

Slope of the line tangent to any corresponding point on the Total Product Curve

A

Marginal Product of Labor (MPvL)

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28
Q

When MPvL = ___ , the total production is at a maximum

A

0

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29
Q

Maximum MPvL occurs where total production is (steeper/flatter)

A

steeper (at the highest point on the curve before it declines)

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30
Q

Whats the formula for MPvL?

A

dQ/dL

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31
Q

As the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease

A

Diminishing Marginal Returns

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32
Q

When the use of labor is (small/large) and capital is (variable/fixed), output increases considerably since workers begin to specialize

A

Small

Fixed

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33
Q

Initially, MPvL (increases/decreases)

A

Increases

34
Q

Assign Tasks

A

Specialization (ex. one person sews a shirt and the other person irons on a logo)

35
Q

When the use of labor input is (large/small), some workers become less efficient

A

Large

36
Q

Eventually, MPvL (increases/decreases)

A

Decreases (diminishes)

37
Q

Why does MPvL eventually decrease (diminish) when labor input is large?

A
  1. Crowding of Fixed Inputs (fixed number of machines and factory size)
  2. Socialization (amount of talking is directly proportional to the number of workers and increases with each additional worker)
38
Q

If there are 20 machines, the MP of the 21st worker is (more/less) than the 20th worker

A

Less

because the 21st worker will have to share a machine and of course higher levels of crowding/socialization

39
Q

There are 20 machines in a factory. At what point do the negative impacts of crowding and socialization outweigh the benefits of specialization?

A

Anywhere after L=1 and Before L = 21

40
Q

Changes in technology will cause shifts in the ___ ___ ___

A

Total Production Curve

41
Q

Can labor productivity increase if there are improvements in technology

A

Yes, even though any given production process exhibits demising returns to labor

42
Q

Has two variable inputs (Labor and Capital)

A

Long Run Production

43
Q

What two things must a firm meet for technologically efficient production?

A
  1. Choose the technology that uses smallest possible quantities of inputs to produce a given level of output
  2. Choose the technology that produces the most output from given quantities of inputs K&L
44
Q

Curve that shows all technologically efficient combinations of labor and capital that can produce a single (iso) level of output (quantity)

A

Isoquant

45
Q

If labor > capital, does that mean that the company is technologically inefficient?

A

No. It can still be efficient (things can be done by hand or machines can run 24/7 unlike employees)

  • only technologically inefficient if:
    1. K=6 and L=6 and Q=20
    2. K=6 and L=8 and Q=20 INEFFICIENT (more L for same Q)
46
Q

What is the biggest difference between Isoquant and Indifference Curves?

A

Isoquants hold something measurable (quantity) constant

Indifference Curves hold something that is not measurable (utility) constant

47
Q

Isoquants farther from the origin represent (greater, less) levels of output

A

Greater (quantity is higher)

48
Q

Isoquants (do/don’t) cross

A

Don’t (if they do that means one is inefficient)

ex.
L=20 and K=10 and Q=30
L=20 and K=10 and Q=20 INEFFICIENT

49
Q

Isoquants slope (up/down)

A

Down (if they slope up then one is inefficient)

ex.
L=20 and K=10 and Q=30
L=30 and K=20 and Q=30 INEFFICIENT

50
Q

Slope of the isoquant

A

Marginal Rate of Technical Substitution (MRTS)

51
Q

Units of K (input in the vertical axis) that can be replaced with an additional unit of L (input on the horizontal axis), keeping the output constant

A

Marginal Rate of Technical Substitution (MRTS)

52
Q

The slope of the isoquant (MRTS) becomes ___ as more K is replaced by L

A

Flatter

53
Q

Change in Q resulting from using one extra unit of L, holding all other factors (K) constant

A

MPvL

54
Q

Change in Q resulting from using one extra unit of K, holding all other factors (L) constant

A

MPvK

55
Q

Whats the formula for Marginal Product of Capital?

A

dQ/dK

56
Q

Isoquants are (convex/concave)

A

Convex - implied because diminishing MRTS occurs because of DMR

57
Q

Replacements value of L in terms of K falls (an additional unit of L replaces fewer and fewer units of K)

A

Diminishing Marginal Rate of Technological Substitution (DMRTS)

58
Q

when L goes up, MPvL goes (up/down)

A

Down

because each additional worker is less useful

59
Q

when K goes down, MPvK goes (up/down)

A

Up

because each remaining piece of capital is more useful

60
Q

Straight line isoquant, constant MPs and MRTS

A

Perfect Substitutes

61
Q

MPs=0, MRTS=0/∞, L-shaped

A

Perfect Complements (no substitution available; cannot increase output unless K and L are both increased in that specific proportion)

62
Q

Linear production function means perfect ___

A

Perfect Substitute

63
Q

Fixed proportions production function means perfect ___

A

Perfect Complements

64
Q

How does a firm decide, in the long run, the best way to increase output?

A

Returns to Scale

65
Q

Rate at which output increases as inputs are increased proportionately

A

Returns to Scale

66
Q

Output more than doubles when all inputs are doubled

A

Increasing Returns to Scale (IRS)

67
Q

Larger output associated with lower average cost (ex. auto manufacturing)

A

Increasing Returns to Scale (IRS)

68
Q

One firm is more efficient than many (ex. electric utilities)

A

Increasing Returns to Scale (IRS)

69
Q

The isoquants get closer together

A

Increasing Returns to Scale (IRS)

70
Q

Output doubles when all inputs are doubled

A

Constant Returns to Scale (CRS)

71
Q

Size does not affect productivity

A

Constant Returns to Scale (CRS)

72
Q

May have a large number of producers

A

Constant Returns to Scale (CRS)

73
Q

Isoquants are equidistant

A

Constant Returns to Scale (CRS)

74
Q

Output less than doubles when all inputs are doubled

A

Decreasing Returns to Scale (DRS)

75
Q

Decreasing efficiency with large size

A

Decreasing Returns to Scale (DRS)

76
Q

Reduction of entrepreneurial abilities

A

Decreasing Returns to Scale (DRS)

77
Q

Isoquants become farther apart

A

Decreasing Returns to Scale (DRS)

78
Q

f(2K,2L) = 2Q

A

CRS

79
Q

f(2K,2L) > 2Q

A

IRS

80
Q

f(2K,2L)

A

DRS

ECO 302 (4 decks)

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