WEEK 5

Question 1

What is the goal of production

Answer 1

Profit maxing
Cost minimization

Question 2

What is the profit formula

Answer 2

Profit = total revenue - total cost

Question 3

Assume what in producer theory

Answer 3

Firm makes one good
Firm picked that good
more inputs,more outputs

Question 4

In the short run

Answer 4

Labour is variable
Capital is fixed

Question 5

In the long run

Answer 5

All inputs are variable

Question 6

What is marginal product of labour

Answer 6

Additional output a frim produces by using another unit of labour

Question 7

How to find MPL

Answer 7

differentiating the production function

Question 8

What is the product function

Answer 8

an equation with Y as Q and X as L and K

Question 9

As a firm gets more labour what happens

Answer 9

MPL drops

Question 10

What is an isoquant

Answer 10

A graph which shows what combinations of inputs can make different outputs

Question 11

What are isoquant key features

Answer 11

Downwards sloping
convex curves
Cannot intersect

Question 12

Output rises where in isoquants

Answer 12

Further away from the origin

Question 13

What is q in the production function

Answer 13

Output

Question 14

What is K in the production function

Answer 14

Capital

Question 15

What is L in the production function

Answer 15

Labour

Question 16

How to solve cobb-douglas functions

Answer 16

Sub the powers in then the K and L in to find q

Question 17

What is the marginal rate of technical substitution

Answer 17

The rate at which the frim can trade labour for capital, holding the output constant

Question 18

What is the equation for MRTS

Answer 18

Marginal production of labour / Marginal production of capital

Question 19

When does a production function have constant returns to scale

Answer 19

if changing capital and labour by a multiple changes output by a multiple

Question 20

When does a production function have increasing returns to scale

Answer 20

If changing capital and labour by a multiple and changes output by a higher multiple

Question 21

When does a production function have decreasing returns to scale

Answer 21

If changing capital and labour by a multiple changes output by a lower amount

Question 22

How do we find total costs

Answer 22

Fixed cost + variable cost

Question 23

What comes into fixed costs

Answer 23

Capital - rental rate (r)

Question 24

What comes into variable costs

Answer 24

Labour - wage rate (w)

Question 25

how to find marginal costs

Answer 25

TC differentiated

Question 26

How to find average costs

Answer 26

TC / q

Question 27

What is AVC

Answer 27

Average variable costs

Question 28

How to find AVC

Answer 28

Variable costs / q

Question 29

The smaller elasticity means

Answer 29

more sensitive to price changes

Question 30

the larger the elasticity means

Answer 30

Less sensitive to price changes

Question 31

In the long run firms choose

Answer 31

K and L to maximize production efficiency

Question 32

What is cost minimization

Answer 32

Economically efficient input combination for a given q

Question 33

What is an isocost line

Answer 33

An isocost line shows what combinations of the two inputs can be employed for a given cost

Question 34

An increase in the cost of labour does what

Answer 34

Pivots the isocost line and makes it steeper

Question 35

What happens if an increase in labour happens on the graph

Answer 35

Shifts left

Question 36

An increase in the cost of capital does what

Answer 36

makes the slope flatter - shifts the line down

Question 37

What is the Y and X in isoquant and isocost lines

Answer 37

Y = capital X = labour

Question 38

What does isoquant mean to isocost lines

Answer 38

The isocost is the budget line for costs

Question 39

Where is the best combination of inputs found

Answer 39

Where the tangent is between a given isoquant and lowest attainable isocost line

Question 40

When are costs minimized

Answer 40

MRTS = w/r

Question 41

in the long run firms can do what

Answer 41

shift onto different short run cost curves

Question 42

What does the long run average cost curve look like

Answer 42

An envelope around short run average cost curves

Question 43

When does a firm have economies of scale

Answer 43

If doubling output causes cost to less than double

Question 44

When does a firm have diseconomies of scale

Answer 44

if doubling output causes cost to more than double

Question 45

When does a firm have constant economies of scale

Answer 45

If doubling output causes cost to double