ECON 110 Chapter Notes - Chapter 20: Capital Good, Fixed Investment, Retained Earnings
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24 Dec 2016
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Production occurs in stages: some output is produced and used as inputs by other firms; these firms then produce output which may be used as inputs by other firms. If one adds the market values of all outputs created by all firms, the problem of double counting occurs. Double counting can be solved by distinguishing two types of output. Value added: the value of a firm"s output minus the value of the inputs that it purchases from other firms: this concept can also be used to avoid double counting. Value added (individual firm) = sales revenue cost of intermediate goods. The payments to factors of production (wages of workers) are not purchased from other firms: they therefore aren"t subtracted from the firm"s revenue when computing value added. Value added is the correct measure to determine each firm"s contribution to total output: total output is the amount of market value that is produced by that firm.
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The law of eventually diminishing marginal returns: (Points : 1)
a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y d. None of the above |
b. the marginal rate of technical substitution c. equal to MPx/MPy d. all of the above e. none of the above |
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained d. a and b e. a and c |
b. variable cost c. marginal rate of technical substitution d. total cost e. none of the above |
b. the average product of labor (L) is equal to ?2 c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent d. a and b e. a and c |
b. relevant to decisions in which one or more inputs to the production process are fixed c. not relevant to optimal pricing and production output decision facilities d. crucial in making optimal investment decisions in new production facilities e. none of the above |
b. all inputs are considered variable c. some inputs are always fixed d. capital and labor are always combined in fixed proportions |
A linear total cost function implies that: (Points : 1) |
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above