Explain the concept of increasing-opportunity-cost with constant returns to scale. In your answer, assume that more of the labor supply is allocated to production of labor-intensive good X and more of the capital stock is allocated to capital-intensive good Y.

Explain the concept of increasing-opportunity-cost with constant returns to scale. In your answer, assume that more of the labor supply is allocated to production of labor-intensive good X and more of the capital stock is allocated to capital-intensive good Y.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter9: Production Functions

Section: Chapter Questions

Problem 9.2P

See similar textbooks

Similar questions

Assume an economy producing only two goods (shoes and computers) with a fixed amount of productive resources and technology and employing all its productive resources to the maximum. Production in this economy is subjected to the law of diminishing marginal returns and resources are assumed to be fully optimized. In addition, the cost of sacrificing shoes for computers and vice versa is 1. On the basis of the foregoing assumptions, answer the following questions: i. Draw the economy’s production possibility frontier on hindsight of the relevant assumption. Why are points outside the frontier unattainable? iii. Identify three ways by which the economy can attain the level of production outside the PPF. What happens to the PPF when technological change overwhelmingly favours the production of computers? What happens to the PPF when the economy discovers an improved technology for producing shoes? Assume now that the sacrifice ratio is greater than 1, show what will…
Assume an economy producing only two goods (shoes and computers) with a fixed amount of productive resources and technology and employing all its productive resources to the maximum. Production in this economy is subjected to the law of diminishing marginal returns and resources are assumed to be fully optimized. In addition, the cost of sacrificing shoes for computers and vice versa is 1. On the basis of the foregoing assumptions, answer the following questions: i. Draw the economy’s production possibility frontier on hindsight of the relevant assumption. What happens to the PPF when technological change overwhelmingly favours the production of computers? What happens to the PPF when the economy discovers an improved technology for producing shoes? Assume now that the sacrifice ratio is greater than 1, show what will happen to the shape of the production possibility frontier. vii. Mention three (3) conditions under which the sacrifice ratio between the goods will be…
Table 19.15 shows how the average costs of production for semiconductors (the "chips" in computer memories) change as the quantity of semiconductors built at that factory increases. a. Based on these data, sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis. How does the curve illustrate economies of scale? b. If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if quantity demanded is 70,000 semiconductors? 50,000 semiconductors? 30,000 semiconductors? c. Explain how international trade could make it possible for even a small economy to take full advantage of economies of scale, while also benefiting from competition and the variety offered by several producers. Quantity of Semiconductors 10,000 20,000 30,000 40,000 100,000 Table 19.15 Average Total Cost $8 each $5 each $3 each $2 each $2 each
In your "toast" production function, you used your labor and a toaster as capital. Keeping capital constant, i.e., with only one toaster if you keep adding the labor, i.e., bring your friends to help you with making toasts, which of the following might happen? Group of answer choices Marginal returns to labor will be a constant. Marginal returns to labor will keep decreasing and, after a point, it will become negative. Marginal returns to labor will keep increasing. Marginal returns to labor will keep increasing and then be a constant.
Consider an economy that produces two goods , X and Y. Use a production box diagram to construct the production possibility frontier for these two goods. Also indicate the optimal consumption point and price ratio that will prevail. Suppose now that technical progress causes the X isoquants to shift towards the origin. How will this affect the production possibility frontier, the optimal consumption point and equilibrium price ratio for X and Y
A country's production is described by the function 2 1 f(x, y) = 30x³y3 units, when x units of labor and y units of capital were used. a) Compute and f,- b) What is the marginal productivity of labor and the marginal productivity of capital when the amounts expended on labor and capital are 100 units and 30 units, respectively? c) In order to increase the country's productivity, should the government have encouraged capital investment rather than increasing expenditure on labor?
In economics, the cost of production is defined as the expenditures incurred to obtain the factors of production such as labor, land, and capital that are needed in the production process of a product. Explain the following in relation the total cost in economics i. A firm pays its accountant an annual allowance of $10,000. Is this an economic cost? Explain. ii. The owner of a small retail store does her own accounting work. How would you measure the opportunity cost of her work?
b) There are two firms in the economy. Each firm employs positive amounts of capital and labour. The technology satisfies diminishing marginal rate of technical substitution of labour for capital. Currently, A’s marginal rate of technical substitution of labour for capital is 4 while B’s marginal rate of technical substitution of labour for capital is 2. Is the current production of the two firms efficient? If not, describe an exchange of inputs that would improve efficiency. Can these production levels of the two firms be observed in a perfectly competitive equilibrium of a production and exchange economy? Explain c) State the first theorem of welfare economics of a production and exchange economy. Which conditions must be satisfied for the Pareto efficiency of an allocation of a production and exchange economy (assuming that all goods are used, produced and consumed in strictly positive quantities)? Discuss and explain
Answer each of the following questions as either true or false. For a statement to be “true,” it must always be true. If there is at least one case where the statement is not true (or if you need more information to be sure), answer “false.” You must justify each answer with an appropriate explanation or counterexample (which may include a relevant diagram). A firm can make widgets using capital and labor according to the production function f(K,L) = 100L + 0.5K. Denote the wage w and the rental rate on capital r. If r is sufficiently high, the firm will not hire any capital, no matter how many widgets it wants to produce.
1. Let y = f(x1, x2)=x11/2+ X1X2 be a firm's production function, where x20, x220. - a. Write down the firm's production possibility set, and its input requirement set.“ b. Is this production function concave, quasi-concave? c. Is this production function homogenous, homothetic? + d. Find its returns to scale when x1=1, and x2=1.e
Production Techniques: I II III IV Labor 4 3 2 5 Capital 2 3 5 2 Answer the question on the basis of the following information: Suppose 15 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $3 and $5, respectively. Which technique is economically most efficient in producing A?
8. An economy is endowed with K = 100 units of capital and L=200 units of labor. Two goods are produced: mugs and spoons. The production function for mugs is given by M(Km, Lm) = √ Km Lm. And the production function for teaspoon is T (KT, LT) = KT¹/3 L2/3 Find the relationship between capital labor ratio in mug production and capital labor ratio in teaspoon production that must prevail when the production is efficient.