Microecon Week 5

Question 1

What is the name of the mathematical relationship between inputs and outputs?

Answer 1

The production function

Question 2

What is the name for the additional output from adding +1 unit of an input, holding other inputs constant?

Answer 2

Marginal prooduct

Question 3

What is the name of the slope of the production function in units of labour (holding capital etc. constant)?

Answer 3

Marginal product of labour

Question 4

What do isoquant maps show?

Answer 4

The rate of technical substitution

Question 5

What is the name of the amount one input can be reduced when +1 unit of another input is added, holding output constant?

Answer 5

Marginal rate of technical substitution

Question 6

If marginal product of labour (MPL) is high, I can…?

Answer 6

I can give up capital because gaining labour adds to production

Question 7

If marginal product of capital (MPL) is high, I can’t…?

Answer 7

I can’t give up much capital to gain labour because reducing capital reduces output

Question 8

If markets for labour and capital are perfectly competitive, prices of inputs and outputs adjust so that…?

Answer 8

• Bang for your buck is the same for all inputs and for all production processes
• Inputs in every industry will be paid based on their marginal productivity

Question 9

What is the name of the type of cost that must be regularly incurred to remain in business, but that does not vary with the level of output?

Answer 9

Fixed Costs

Question 10

What is the name of the type of cost that increases with the quantity produced?

Answer 10

Variable Costs

Question 11

What is the name of the type of cost that have been incurred in the past that can never be recovered? These should not be entered into any economic discussions.

Answer 11

Sunk Costs

Question 12

If inputs increase by a factor of X, output increases by a factor equal to X, what returns to scale does this describe?

Answer 12

Constant returns to scale

Question 13

If inputs increase by a factor of X and outputs increase by a factor if greater than X, what returns of scale is this?

Answer 13

Increasing returns to scale

Question 14

If inputs increase by a factor of X, and outputs increase by a factor less than X, what returns to scale is this?

Answer 14

Decreasing returns to scale

Question 15

What is the name given to a good that violates the law of demand?

Answer 15

Giffen good

Question 16

What is the name of a good that has no utility to the consumer?

Answer 16

Useless good

Question 17

What is the name given to a good whose demand decreases when consumer income increases?

Answer 17

Inferior good

Question 18

What functions are homogeneous of degree zero?

Answer 18

Demand functions