ECO100Y5 Chapter Notes - Chapter 9-10: Isoquant, Isocost, Marginal Cost
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CHAPTER – ISOQUANT ANALYSIS
SUMMARY
• The marginal rate of substitution measures the rate at which
one factor is substituted for another with output being held
constant.
• The marginal rate of (technical) substitution between two
factors of production is equal to the ratio of their marginal
products.
• The least-cost position is given graphically by the tangency
point between the isoquant and the iso-cost lines
• Changes in relative factor prices will cause a partial
replacement of factors that have become relatively more
expensive by factors that have become relatively cheaper.
• A rise in the price of one factor with all other factor prices held
constant will (1) shift the cost curves of products that use that
factor upward and (2) lead to a substitution of factors that are
now relatively cheaper for the factor whose price has risen
CHAPTER-COMPETITIVE MARKETS
SUMMARY
• MARKET STRUCTURE AND FIRM BEHAVIOUR
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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
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