Microecon chapter 8 Flashcards
MPK and K relation
Negative
MPL and L relation
Negative
Long-run cost minimization
MPK/PK = MPL/PL
Factors in SR
Fixed
Factors in LR
Production variable
Factors in VLR
Same as LR + technologically variable
LRAC
Minimum possible in the LR (curves from the AC minimums)
Increasing revenue to scale
%Δoutput > %Δinput (LRAC↓)
Decreasing revenue to scale
%Δoutput < %Δinput (LRAC↑)
Constant revenue to scale
%Δoutput = %Δinput (No Δ in LRAC) -> MES
What causes VLR
Technological change
Technological changes (3)
- New techniques
- Improved input
- New product
MPL formula
ΔQ/ΔL (K constant)
MPK formula
ΔQ/ΔK (constant L)
Marginal revenue product in perfect competition (2)
- MRPL = MPL x MR
- MRPK = MPK x MR
MRPL formula
MPL x PL
MRPK
MPK x PK
Profit maximization says…
MR = MC
Marginal expense labour equivalent
MRPL
Minimum efficient scale equivalent
MRPL
Wage formula
MRPL x P
If MPL > w/p
π↑ by L↑
If MPL < w/p
π↑ by L↓
If MPL = w/p
π max level of L
MPL and L relation
Negative
MPK and K relation
Negative
Isoquant
Combination of L and K that produce the same quantity of output
What happens as we substitute more labour for capital, holding Q constant?
Marginal rate of technical substitution = MPL/MPK = ΔK/ΔL = slope of isoquant
Iso-cost line
Line showing the cost of production for various levels of K, L
TC formula
PL x L + PK x K
