Economics 1010a1 Chapter 6: Chapter 6 Notes

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emeraldraccoon202

10 Jan 2019

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Producers can make final goods or intermediate goods intermediate goods: a good that is used to produce another good. Production function: a mathematical relationship that describes how much output can be made from different combinations of inputs. In the long run, the firm can freely choose the amounts of both labor and capital it employs the more inputs the firm uses, the more output the firm makes. Production functions firms make one product as its output and uses two inputs, capital and labor, to do so. Q = f(k,l) (q=labor, k= capital, l= labor) Marginal product: the additional output that a firm can produce by using an additional unit of an input (holding use of the other input constant) Diminishing marginal product: a feature of the production function; as a firm hires additional units of a given input, the marginal product of that input falls. Q/ l is the slope of the sr production function.

Related Questions

A basic assumption of the short run is that a firm

A. cannot adjust its workforce or the amount of capital it uses
B. can reduce the number of workers it uses, but it cannot adjust how much capital it uses.
C. can freely adjust the amount of labor and capital that it employs.
D. can employ more workers and add more capital to the production process

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For each of the following assertions, please indicate whether they are true or false. No credit will be given without an explanation as to why your claim is correct.

(a) (4 points) There are two firms: one has production function f (K, L) = K + L and the other has production function f?(K,L) = (K+L)2 ?50. Assertion: These two firms have the same shaped isoquants, but different technology.

(b) (4 points) Assertion: In the short run, if the marginal product of labor curve is decreasing, then it is below the average product of labor curve.

(c) (4 points) A T-shirt company can make 1000 T-shirts with 2 workers and 1 machine. It continues to make 1000 T-shirts if it has more than 2 workers but only 1 machine or 2 workers and more than 1 machine. The company currently produces 1000 shirts per month for its single customer. The price of capital falls, but the firm must still produce 1000 shirts per month. Let all inputs be variable. Assertion: The firm will not hire or fire any workers.

(d) (4 points) A technology firm has a Cobb Douglas production function and measures the marginal rate of technical substitution (MRTSLK) at MPL/MPK = 3. The prices of labor and capital faced by the firm are such that currently W/R = 2. Assertion: The tech firm can lower costs (holding output fixed) by laying off some of its labor force and using more capital.

A steel producer has the production function q=10K^0.75 E^0.25 where q is the quantity of steel, in metric tons, K is the firm's capital stock, and E is the number of labor hours it employs (measured in thousands). a) Assume the firm's current capital stock is fixed at K = 4096. If the firm employs E = 81 labor units, then how much steel does it produce?

b) Suppose the firm receives an order to produce 10,000 metric tons of steel. If its capital stock is fixed at K = 4096, then how many hours of labor must it employ to satisfy the order?

c) In the long run, the firm is free to vary both its capital stock and the number of workers it employs. Given this, what would happen to the firm's output if it doubles the amount of labor and capital it uses? What happens if it quadruples the amount? What does this result suggest in general?

Economics 1010a1 Chapter 6: Chapter 6 Notes

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