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21 Cards in this Set
- Front
- Back
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Production technique
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Combination of K and L
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Capital Intensity
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K/L
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Production Function
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X = aL^aK^b
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Constant returns to scale
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A production function exhibits constant returns to scale when a proportionate increase in each input produces the same proportionate increase in output.
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Increasing returns to scale:
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A production function exhibits increasing returns to scale when a proportionate increase in each input produces a larger than proportionate increase in output.
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Decreasing returns to scale:
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A production function exhibits decreasing returns to scale when a proportionate increase in each input produces a smaller than proportionate increase in output.
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A production function exhibits decreasing returns to scale when a proportionate increase in each input produces a smaller than proportionate increase in output.
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σ = [percentage change in K/L]/[percentage change in W/R]
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Perfect subsitution
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straight isoquants
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marginal rate of technical substitution
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-dK/dL
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technical efficiency
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minimum quantity of inputs is used to produce output
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cost efficiency
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operating at minimal costs
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total costs
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TC = WL + RK
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total revenue
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R = PX
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first order condition for profit max.
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d(Profit)/d(Labour) = 0
d(Profit)/d(Kapital)=o |
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profit max
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firm chooses optimal K L ratio
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efficient firm
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cost efficient / technically efficient
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graphically
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Graphically, the optimal (K,L) ratio can be determined as the point of tangency between the isoquant and the iso-cost curve. See Figure 10.8.
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technical progress
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more production at same k, l level
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netral technological change
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isoquant moves inwards, no curve change
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labour-saving
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raising k,l ration and moving inwards
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capital saving
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idem
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