Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 7.A, Problem 1TY
To determine
Budget line and the indifference curve of the firm.
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Students have asked these similar questions
Which of the following statements accurately describes typical indifference curves?
a. The slope of an indifference curve indicates the marginal rate of transformation.
b. Indifference curves are down-sloping due to the diminishing average product.
c. An indifference curve traces combinations of production inputs which yields the same level of production cost.
d. Indifference curves represent the constraints that individuals face in their decision-making process.
e. Further away from the origin an indifference curve is located, the higher level of utility it represents.
The marginal rate of technical substitution is:
The rate at which a producer is able to exchange, without affecting the quantity of output produced, a little bit of one input for a little bit of another input.
The rate at which a producer is able to exchange, without affecting the total cost of inputs, a little bit of one input for a little bit of another input.
The rate at which a producer is able to exchange, without affecting the total inputs used, a little bit of one onput for a little bit of another onput.
A measure of the case or difficulty with which a producer can substitute one technique of production for another.
Suppose the price of labor used by a cost-minimizing firm decreases. The firm responds to the price change by changing its demands for certain inputs, but keeps its output constant. What happens to the firm’s use of labor? What happens to the firm’s production costs? Graphically show the new optimal bundle and associated isocost curve on the graph below.
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- The slope of an isocost line measures Answer choices The marginal rate of technical substitution The marginal rate of substitution the optimal combination of inputs the ratio of the prices of the inputsarrow_forwardIn the Heckscher-Ohlin (H-O) model, Explain with the help of a graph the effect of an increase in the relative price of a labor-intensive good on input choice.arrow_forwardSam Malone is considering renovating the bar stools at Cheers.The production function for new bar stools is given byq = 0.1k 0.2l0.8 where q is the number of bar stools produced during the renovation week, k represents the number of hours of bar stoollathes used during the week, and l represents the number ofworker hours employed during the period. Sam would like toprovide 10 new bar stools, and he has allocated a budget of$10,000 for the project.a. Sam reasons that because bar stool lathes and skilled barstool workers both cost the same amount ($50 per hour),he might as well hire these two inputs in equal amounts.If Sam proceeds in this way, how much of each input willhe hire and how much will the renovation project cost?b. Norm (who knows something about bar stools) arguesthat once again Sam has forgotten his microeconomics.He asserts that Sam should choose quantities of inputs sothat their marginal (not average) productivities are equal.If Sam opts for this plan instead, how much of…arrow_forward
- For the typical Cobb-douglas function, q=AKaLb whereas APL / APK = 1 , find out the marginal rate of technical substitution.arrow_forwardSuppose the utility function of a person consuming two commodities X and Y with income Birr 600 is given by U =2xy. If the per unit price of X is Birr 20 and per unit price of Y is Birr 40. a) Calculate the utility maximizing level of consumption of X1 and X2. b) Find the MRSX, Y at the optimum.If the production function of a firm is given by Q=,and the input prices are r = Birr 8 per unit and w = Birr 2 per unit,arrow_forwardHow does a consumer’s optimal choice of goods change if all prices and the consumer’s income double? (Hint: focus on the budget constraint. You don’t have to, but you can use an example to support your answer).5. Output is produced according to a production process given by: Q = 4LK, where L is the quantity of labor input and K is the quantity of capital input. If the price of K is $10 and the price of L is $5, then what is the cost-minimizing combination of K and L capable of producing 32 units of output?arrow_forward
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