ECON 2X03 Lecture Notes - Mpeg-1 Audio Layer I, Fixed Cost, Isoquant

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plumwasp502

10 Apr 2013

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Document Summary

Inputs (factors or factors of production): things firms use to make their output. Input bundle: a list of quantities, one for each input a firm can use. Production function: the maximum output a firm can produce as a function of input bundles y = output z = input. So a production function ex: y = f(z1,z2) Assume firms behave in such a way to maximize profits (difference between revenue and cost of production) Given that revenue depends on output, profit maximization, requires that the given level of output be produced at a minimum cost. The firm"s cost minimization problem: min w1z1 + w2z2 subject to f(z1z2) > y" where: W1 = cost per unit of input 1. W2 = cost per unit of output 2. Opportunity cost (economic cost or cost): the opportunity cost of something is the value he value of the resources used to obtain it in their best alternative.

Related Questions

Consider a profit-maximizing firm with the following production function: f(ï¨x1,x2) = ½x1x2.

The prices of the two inputs are equal to w1= 4 and w2= ½ 2, respectively

.a) What are the returns-to-scale properties of the firmâs production technology. Prove your answer.

.b) What input combination should the firm use to produce Q units of output?

.c) What is the firm's total cost of production as a function of the amount of output, Q?

.d) What is its marginal and average cost of production?

.e) Suppose the price of the first input falls to $2. What input combination should the firm use

now to produce Q units of output? What is its total, marginal, and average cost of production?

lemoncricket14

A firm produces output using two factors of production according to technology f(x1, x2) = X1^1/2*X2^1/4. The price of output is 4. Factors 1 and 2 costs to the firm w1 and w2 per unit, respectively.

(i) Write an expression for the firm's profit.

(ii) Write an equation having on the left-hand side the marginal product of input 1 times the price of output and on the right-hand side its wage (w1). Do the same for input 2.

(iii) Solve the two equations you found in (ii) in the two unknowns, x1 and x2. (This will give the amounts of factors 1 and 2 that maximize the firm's profits.)

(iv) If w1 = 2 and w2 = 1, how many units of factors 1 and 2 will the firm demand? How much output will it produce? How much profit will it make?

beigebadger867

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

The marginal product is defined as: (Points : 1)

a. the ratio of total output to the amount of the variable input used in producing the output
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

The rate at which one input X may be substituted for another input Y in a production process, while total output remains constant, is: (Points : 1)

a. the slope of the isoquant curve
b. the marginal rate of technical substitution

c. equal to MPx/MPy

d. all of the above
e. none of the above

Marginal revenue product is: (Points : 1)

a. defined as the amount that an additional unit of the variable input adds to the total revenue
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

Marginal factor cost is defined as the amount that an additional unit of the variable unit of the variable input adds to ____________. (Points : 1)

a. marginal cost
b. variable cost
c. marginal rate of technical substitution
d. total cost
e. none of the above

In the Cobb-Douglas production function Q=aL^?1.K^?2 ______________. (Points : 1)

a. the marginal product of labor (L) is equal to ?1
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