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- Section one-theory A: Key concepts 1. What is the difference between production in the short- and long-run? What does it mean for two inputs to be perfect substitutes? 2. B: Theory: Cost Minimisation (isocost-lines and production) Note: In the class, I will put capital on the ‘'Y' axis and labour on the 'X' axis. Obviously, the choice doesn't matter mathematically, but if you want your graph to look like mine, do the same! 3. The wage rate is £10 and the capital rate is £20. If a firm was spending £c, show what combinations of labour and capital are possible in an equation. Represent the combinations possible if the firm spent £200, £400, or £600 in a suitably labelled graph. 4. A firm has technology such that it can produce... q=L+K a. What name do we give to this production function? b. Assume output q = 30. Draw the isoquant in a suitably labelled graph. 5. Assuming the same wages and technology as before - how much does it cost the firm to produce q = 30? How much labour does it…1. what is the use of production fuction in product analysis? 2. what is the importance of long run and short run production in production theory?104. The price of capital is $12 per machine-hour and the price of labor is $3 per hour. Below are production schedules for a firm showing the possible combinations of capital and labor that will produce 100 units of output. Which combination will this cost-minimizing firm choose? A) Labor: 20 B) Labor: 10 C) Labor: 5 D) Labor: 4 A. Choice A B. Choice B C. Choice C D. Choice D Capital: 5 Capital: 10 Capital: 20 Capital: 25 MPL: 5 MPL: 10 MPL: 20 MPL: 25 MPK: 20 MPK: 10 MPK: 5 MPK: 4
- 1a. Define average product and marginal product. Briefly explain reasons for a diminishing marginal product. b. What are three stages of production? Which stages reflect a firm’s observed behavior versus experimental situation? Briefly justify your answer.Suppose the productivity of capital and labor are as shown in the table below. The output of these resources sells in a purely competitive market for $1 per unit. Both capital and labor are hired under purely competitive conditions at $3 and $1, respectively. Units of MP of Units of MP of Capital Сapital Labor Labor 24 11 1 1 21 9 2 18 8 3 15 7 4 4 6 6. 3 1 7 7 1 0.5 8 CO LO Co COwhich of the following best describes marginal product?A.)Left over output- the loaves a bakery makes but does not sell that goes unused. B.) The total number of loaves a bakery can create with 5 workers and a fixed amount of capital. C.) The loaves made by a bakery using a substandard quality flour that ultimately harms business profits. D.) When the number of bakery staff increases from 2 to 3 bakers, 5 additional loaves are made.
- A production process uses two inputs, labor and capital. If the marginal product of labor per dollar is higher than the marginal product of capital dollar, what should the firm do to lower costs? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a Increase output b Decrease output C Increase the amount of capital d Increase the amount of labora.)Suppose that labor is the only variable input in the production process. If the marginal cost of production is diminishing as more units of output are produced, what can you say about the marginal product of labor?b.)What are economies of scale? What are economies of scope? What is the difference between the two?3. Production: a. State the decision rules used for finding the optimal amount of input(s) in both short-run and long-run production” b. Using your own words, explain the rationale behind each stated rule as if you were explaining them to someone who has not yet completed: c. The Demand for Labor is the visualization of what important short-run production concept, and what would shift this demand curve to the right? d. Use your answer above to explain why some worker (labor) earn much more than others, and why some workers are at a risk of losing their jobs to machines (capital). e. Explain why a Cobb-Douglas production function such as Q = LaKb s much more realistic than production functions such as Q = aL + bK
- 1. Why do marginal costs tend to rise, and marginal benefits tend to fall? Explain. 2. Is it possible to avoid Diminishing Marginal Return? Why? Explain 3. Suppose that the Law of Diminishing Returns sets in immediately (that is, there is no range of output over which the Division of Labor holds). What would the short run marginal cost, average cost, and average variable cost curves look like? Explain.1. Please answer the following questions: a. Explain how input, output and cost are interrelated. b. Explain the meaning of Marginal Cost.3. We often work with production technologies that give rise to initially increasing marginal product of labor that eventually decreases. Are the following statements then True or False? Explain.If the marginal product of labor ever becomes zero, we know that the production frontier becomes perfectly flat at that point.