ECO 3101 - EXAM 3 Questions with Complete Answers.

ECO 3101 - EXAM 3 Questions with Complete Answers Movement along an isoquant curve - Correct Answers: Changes in inputs Assuming technical efficiency - Correct Answers: 1 input level cannot result in 2 different output levels Marginal Rate of Technical Substitution - Correct Answers: The rate at which the firm can substitute L for K while holding the output constant. MRTS - Correct Answers: MPL/MPK If MRTS is relatively high - Correct Answers: Isoquant is steep If MRTS if relatively low - Correct Answers: Isoquant is flat Along an isoquant - Correct Answers: output is constant Cost - Correct Answers: Wage x L + rental rate x K Isocost - Correct Answers: Shows the different combinations of inputs the firm is able to employ with a given production budget. Where MPL/W = MPK/R - Correct Answers: cost is minimized High Income Countries - Correct Answers: K intensive production, high w, high MPL Low Income Countries - Correct Answers: Labor Intensive Production, Low w, low MPL Labor intensive production - Correct Answers: Flatter isocost, low W Capital intensive production - Correct Answers: Steeper isocost, high w Expansion Path - Correct Answers: Locust of points showing the cost-minimizing input combinations for various levels of output. When does a firm operate along expansion path? - Correct Answers: Long run Labor Intensive - Correct Answers: Lower fixed cost in short run Capital Intensive - Correct Answers: Higher fixed cost in short run Envelope Theorem - Correct Answers: As the # of possible plant sizes increases, LAC becomes a smooth U-shaped curve Minimum efficient scale - Correct Answers: Lowest Q for which LAC is minimized Economies of scale - Correct Answers: Better utilization of K, high startup costs, division of L Diseconomies of scale - Correct Answers: Difficulty and complexity of managing a large firm Economies of Scale: Trends - Correct Answers: pursuit of market share, corporate mergers Diseconomies of scale: Trends - Correct Answers: Creates subdivisions Economies of Scope - Correct Answers: When the cost of producing two or more good jointly is less than the sum of the costs of producing them separately. Why are there economies of scope? - Correct Answers: Shared inputs, by-products Where is AP maximized? - Correct Answers: QAVC Min Explicit Cost - Correct Answers: Direct Monetary Payments Implicit Cost - Correct Answers: Opportunity cost of not using resources for the next best alternative Perfect competition - Correct Answers: Many firms, homogeneous commodity, no barriers to entry/exit, perfect information Normal Profit - Correct Answers: The firm still earns an accounting profit equal to its implicit cost Marginal Revenue Product - Correct Answers: The additional revenue from hiring one more worker Negative aspects of perfect competition - Correct Answers: No product variety, no incentive to invest in R&D Constant-cost industry - Correct Answers: An industry where input prices do not change as the industry expands Increasing-cost industry - Correct Answers: An industry where input prices increase as the industry expands