week 3

Question 1

firm

Answer 1

uses some technology to convert inputs into some output that is sold on the market

Question 2

rational behaviour of firms assumption

Answer 2

to make as much money as possible

Question 3

production factors

Answer 3

he inputs used by a firm. e.g. capital goods, labor, and raw materials

Question 4

production set

Answer 4

the set of all feasible way to produce

Question 5

production function

Answer 5

y = f(x)

Question 6

isoquants

Answer 6

set of all possible combinations of inputs 1 and 2 that are just sufficient to produce a given amount of output

Question 7

difference ic and isoquant

Answer 7

different isoquants identify different level of output and not different level of utility

Question 8

monotonicity (property of technology)

Answer 8

if you increase the amount of at least one of the inputs, it should be possible to produce at least as much output as you were producing originally

Question 9

convexity (property of technology)

Answer 9

if there are 2 ways to produce y units of output, (x1, x2) and (z1, z2), then their weighted average produces at least y units of output

Question 10

marginal product

Answer 10

MP1 = ∆y / ∆x1
how much more output we would be able to produce when we add an additional unit of factor 1

Question 11

monotonic property

Answer 11

if added 1 unit of factor 1, holding factor 2 constant the total output will increase

Question 12

law of diminishing marginal product

Answer 12

the marginal product of a factor
will diminish as we get more and more of that factor

Question 13

technical rate of substitution (TRS)

Answer 13

how much of factor 2 we need to add if we would like to give up a little bit of factor 1 to produce the same amount of output y

Question 14

TRS function

Answer 14

TRS(x1, x2) = ∆x2/∆x1 = − MP1(x1,x2) / MP2(x1,x2)

Question 15

diminishing TRS

Answer 15

as we increase the amount of factor 1, and adjust
factor 2 so as to stay on the same isoquant, the TRS declines

Question 16

profit

Answer 16

simply defined as revenues minus costs

Question 17

n

Answer 17

number of total outputs produced by the firm

Question 18

yi

Answer 18

quantity of output i produced

Question 19

pi

Answer 19

price of output i

Question 20

m

Answer 20

number of total factors used for production

Question 21

xi

Answer 21

quantity of factor i used

Question 22

wi

Answer 22

proce of input i

Question 23

economic definition of profit

Answer 23

value all inputs and outputs at their opportunity cost

Question 24

fixed factor

Answer 24

a factor of production that is purchased in fixed amount in a unit of time

Question 25

variable factor

Answer 25

factor of production that can be used in different amounts

Question 26

isoprofit lines

Answer 26

all combinations of the input goods and the output good that give a constant level of profit

Question 27

slope of the production function

Answer 27

the marginal product, and the slope of the isoprofit line is w1/p, hence MP1 = w1/p

Question 28

cost minimization problem

Answer 28

min w1x1 + w2x2
x1,x2
Such that: f (x1, x2) = y

Question 29

cost function

Answer 29

c(w1, w2, y)
⇒ Measures the minimal costs of producing y units of output when factor prices are (w1, w2)

Question 30

isocost

Answer 30

all combinations of factors that cost the same amount

Question 31

fixed costs

Answer 31

costs associated with fixed factors; need to be paid regardless of the amount of output produced

Question 32

variable costs

Answer 32

costs associated with variable factors; Costs that change with the level of output

Question 33

cost curve

Answer 33

visual descriptions of the various costs of production

Question 34

cost function

Answer 34

the minimum cost of achieving a given level of output

Question 35

total costs

Answer 35

the sum of the variable costs, cv (y), and the fixed costs, F :
c(y) = cv (y) + F

Question 36

average cost function (AC)

Answer 36

measures the cost per unit of output

Question 37

average fixed cost function (AFC)

Answer 37

measures the fixed costs per unit
output

Question 38

average variable cost function (AVC)

Answer 38

measures the variable costs per unit of output

Question 39

marginal cost curve

Answer 39

measures the change in costs for a given change in output

Question 40

pure competition

Answer 40

A market is purely competitive if each firm assumes the market price is independent of its own level of output

Question 41

maximization problem

Answer 41

max py − c(y)
y