ECON 102 Chapter Notes - Chapter 8: Market Structure, Knowledge Transfer, Potential Output
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But in neoclassical growth model with constant returns to scale, such balanced growth will not lead to increases in per capital output and therefore will not generate improvements in living standards. Technological change is assumed to be exogenous in neoclassical growth theory. Many innovations are embodied in either physical or human capital. These innovations cause continual changes in the techniques of production and in the nature of what is produced. Embodied technical change leads to increase in potential output even if the amounts of labor and capital are held constant. Not all technological change is embodied in capital: ie of disembodied technical change: development of new material and production processes allow more output produced with same capital and labor; but embodied in capital as machines and skills. Endogenous technological change: technological change is endogenous in that it is responsive to economic signals as prices and profits respond to economical incentive (research & development, technological growth due to:
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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