Production

Question 1

What is average product?

Answer 1

• TP/# of input

Question 2

What is marginal product?

Answer 2

• ∆TP/∆L = ∆q/∆L

- Extra output when hiring an additional unit of input

Question 3

What is true of marginal product, ceteris paribus?

Answer 3

diminishing

Question 4

What is an isoquant and what is convention?

Answer 4

• Show us the different combinations of K&L that produce given output
• Always: X = L Y = K

Question 5

What is the slope of an isoquant?

Answer 5

• Marginal Rate of Technical Substitution
  
  • Shows how 1 input is traded for another while keeping output constant
• = ∆K/∆L = MPL/MPK keeping q constant

Question 6

What is true of the slope of an isoquant?

Answer 6

• Will always slope down because we assume MP > 0

Question 7

What is true in the LR?

Answer 7

• No fixed inputs - L & K totally variable

Question 8

How can we show returns to scale (not their effects) graphically?

Answer 8

K vs L isocost expansion

Question 9

What are increasing returns to scale?

Answer 9

• Double all inputs = more than double Q

- Isoquants get closer together

Question 10

What are decreasing returns to scale?

Answer 10

• Double all inputs = less than double Q

- Isoquants get further apart

Question 11

What are constant returns to scale?

Answer 11

• Double all inputs = double Q

Question 12

How is technology represented?

Answer 12

• A in q = Af(K,L)

- Outside the production function

Question 13

How can techonoglical progress be represented in a K vs L space?

Answer 13

Isocost shifts left or down (one input will remain constant) but with the SAME output Q associated

Question 14

How do we know technological progress has occurred?

Answer 14

• q2010 = K2010 L2010
• q2015 = K2015 L2015
• ∆q = q2015 - q2010
• If ∆q is > q2015 - q2010 then we have had technological progress
• i.e. ∆QActual - ∆QPredicted

Question 15

What do α and β tell us in a Cobb Douglas production function?

Answer 15

• Describe current technology (as does A)
  
  • aka output elasticities
• If α and β are ≤ 1 (as usual), L and K have diminishing marginal productivity (in SR when one factor is held constant)
• α + β = 1: CRTS
• α + β > 1: IRTS
• α + β ≤ 1: DRTS

Question 16

What is the average product of labour for Cobb Douglass?

Answer 16

TP/L = AL^αK^β/L = AL^α-1Kβ

Question 17

What is MPL for Cobb Douglass?

Answer 17

• MPL = ∆Q/∆L = ∂Q/∂L = αAL^α-1K^β

Question 18

What is MPK for Cobb Douglass?

Answer 18

• MPK = ∆Q/∆K = ∂Q/∂K = βAL^αK^β-1

Question 19

What is MRTS for a Cobb Douglass function? (in conventional graphical space?)

Answer 19

• MRTS = MPL/MPK = αK/βL