MGE 302 Lecture Notes - Lecture 9: Isocost, Isoquant, Marginal Cost

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indigocattle180

13 Dec 2018

School

University at Buffalo

Department

Management Economics

Course

MGE 302

Professor

Matthew Green

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Document Summary

Essential concepts: in long-run analysis of production, all inputs are variable and isoquants are used to study production decisions. The marginal rate of technical substitution (mrts) is the slope of an isoquant and measures the rate at which the two inputs can be substituted for one another while maintaining a constant level of output. The equation of an isocost curve is given by. The slope of an isocost curve is the negative of the input price ratio ( w r. Since the optimal input combination occurs at the point of tangency between the isoquant and an isocost curve, the two slopes are equal in equilibrium. Mathematically, the equilibrium condition may be expressed as. The expansion path is derived for a specific set of input prices. Along an expansion path, the input-price ratio is constant and equal to the marginal rate of technical substitution: long-run total cost (ltc) for a given level of output q is given by.

Related Questions

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

constant costs

increasing returns to scale

constant returns to scale

isocost curve

decreasing returns to scale

isoquant

diseconomies of scale

long-run average cost

economies of scale

long-run marginal cost

economies of scope

marginal rate of technical substitution

expansion path

short-run expansion path

___A curve that displays all the various combinations of inputs that will produce a given amount of output.

___The rate at which one input is substituted for another along an isoquant.

___Line that shows all the possible combinations of inputs that can be purchased for a given total cost.

___A curve showing all of the cost-minimizing levels of input usage for various levels of output.

___When the usage of all inputs is increased by an equal proportionate amount, output ___increases by exactly the same proportion.

___When the usage of all inputs is increased by an equal proportionate amount, output increases by a larger proportionate amount.

___When the usage of all inputs is increased by an equal proportionate amount, output increases by a smaller proportionate amount.

___Cost per unit in the long run.

___The change in long-run total cost per unit change in output.

___When long-run average cost falls as output increases.

___When long-run average cost increases with increases in output.

___Long-run average and marginal costs are equal for all levels of output.

___The situation in which the joint cost of producing two goods is less than the sum of the separate costs of producing the two goods.

___Horizontal line showing the cost-minimizing input combinations for various output levels when capital is fixed in the short run.

aquamarineguinea-pig889

1) The supply curve of a perfectly competitive firm is

a) Its entire MC curve

b) The upward-sloping portion of its MC Curve

c) It's MC Curve above shutdown point

d) Its MR Curve

2. The Long Run supply curve in a constant cost industry is

a) Upward sloping and linear

b) Downward sloping and linear

c) Horizontal and linear

d) Concave upwards

3. The curve which shows different combinations of inputs that yield the same level of output, is called

a) An isoquant

b) An isocost curve

c) Production function

d) Production possibility curve

4. When labor used is 12 units and output is 36, then

a) The marginal product of labor is 3

b) The total product of labor is 1/3

c) The average product of labor is 3

d) None of the above

5. Say the average product of 6 workers is 15. If the marginal product of the 7^th worker is 18, then

a) Marginal product is falling

b) Marginal product is constant

c) Average product is rising

d) Average product is falling

6. Which one of the following statements is TRUE?

a) AP_L cuts the MP_L curve from above

b) MP_L cuts the AP_L curve from above, at the maximum point of the AP_L curve

c) Average and marginal product do not intersect

d) AP_L cuts the MP_L curve from below.

7. The MRTS is equal to the

a) The slope of the total product curve

b) Change in output divided by the change in labor

c) Change in output minus the size of capita

d) Ratio of the marginal products of the inputs

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MGE 302 Lecture Notes - Lecture 9: Isocost, Isoquant, Marginal Cost

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