Week 5 Flashcards
What is an isoquant?
A curve showing all possible input combinations physically capable of producing a given level of fixed output.
True or False:
Isoquants are upward sloping?
False, they are downward sloping.
What is the formula for the slope of an isoquant?
🔺K/🔺L = MPl / Mpk
What does MRTS stand for?
Marginal rates of technical substitution
What is the formula for marginal rate of technical substitution?
MPl / MPk
What is the definition of MRTS?
The slope of an isoquant that measures the rate at which two inputs can be substituted for another.
What is the formula for MRTS?
MRTS = - 🔺K / 🔺L
Why is a negative sign added to the beginning of the MRTS formula?
TO make the outcome positive as isoquant slopes are negative.
As labor is substituted for capital, MPl inclines, or declines?
Declines.
What is an isocost curve?
A curve that shows various combinations of inputs that may be purchased for a given level of expenditure (c) at given input prices (w,r).
What is the K-intercept formula?
C/R
What does tangent mean?
Best fit.
What is the expansion path?
The curve or locus of points that shows the cost-minimizing input combination for each level of output.
What is LTC?
Long run total cost
What is the LTC formula?
wL + rK
TRUE OR FALSE:
Falling LAC indicates economies of scale.
True.
TRUE OR FALSE:
Rising LAC indicates diseconomies of scale?
True.
What is LAC?
Long Run Average Cost
What is the LAC formula?
LTC / Q
What is the definition of Long run average costs?
Long run average cost measures the cost per unit of output when production can be adjusted so that the optimal amount of each input is employed.
What is LMC?
Long run marginal cost.
TRUE OR FALSE :
LMC lies above LAC when LAC is falling?
False.
What is the Long run marginal cost formula?
🔺LTC / 🔺Q
TRUE OR FALSE :
LMC = LAC at the minimum value of LAC?
True.
What are economies of scale?
They occur when long-run average cost falls as output increases.
What are scale economies?
Scale economies arise when quasi-fixed costs are spread over more units of output, causing LAC to fall.
What are diseconomies of scale?
Occur when long-run average cost (LAC) rises as output increases.
What are constant costs?
A point at which neither economies or diseconomies of scale are occurring.
What is the minimum effect scale?
The lowest level of output needed to reach the minimum value of long-run average cost.
What is the minimum efficient scale?
The level of output at which all economies of scale are exhausted.
WHat are constant returns to scale?
The situation when a firms long-run average costs remain unchanged as it increases output.
