ECO230Y1 Lecture Notes - Lecture 10: Zipper, Autarky, Protectionism
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The traditional trade models assume that the production technology has no economies to scale. As we assumed constant returns to scale for our trade models so far, while we will assume production has increasing returns to scale technology. Constant returns to scale: q = q(k,l) q(k,l) q. Increasing returns to scale : q = q(k,l) q(2k,2l) 3q. It means, it all inputs are, say, doubled, output will be more than doubled. Suppose we can produce the output by only labour force, at a wage of per worker. Given that output can expand faster than inputs, there are economies of scale, so average cost is falling as output scale rises. Also so far, the traditional trade models assume that output comprises a homogenous good, while we will assume that consumers prefer variety in goods and producers create product differentiation. These newer models are based on two main concepts: increasing returns to scale and product differentiation.
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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
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 |
b. the marginal rate of technical substitution c. equal to MPx/MPy d. all of the above e. none of the above |
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 |
b. variable cost c. marginal rate of technical substitution d. total cost e. none of the above |
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 |
b. relevant to decisions in which one or more inputs to the production process are fixed c. not relevant to optimal pricing and production output decision facilities d. crucial in making optimal investment decisions in new production facilities e. none of the above |
b. all inputs are considered variable c. some inputs are always fixed d. capital and labor are always combined in fixed proportions |
A linear total cost function implies that: (Points : 1) |
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above