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14 Cards in this Set
- Front
- Back
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Cost Effectiveness/Technical Efficiency |
Cheapest combination of inputs for a given output (while still maximizing output) |
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Cobb-Douglas production function |
Q = (L^a)(K^b) |
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What is the firm theory equivalent for: 1) Consumption Bundle 2) Utility 3) Utility Function? |
1) Input bundle 2) Output 3) Production function |
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In short run, the total production function is? |
Q = F (L, holding K constant)
One variable held constant |
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In the long run, what happens to the variables in the production function? |
Both aren't fixed, they're variable |
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What is the Free-Disposal assumption and what consumer theory assumption is it analogous to? |
If additional units of input negatively affect output, they will not be used. The marginal production of any input is always greater or equal to zero.
Analogous to the non-satiation assumption |
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What is an isoquant? |
It illustrates the long-run combinations of inputs for the same level of output |
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What is the marginal rate of technical substitution and how is it calculated? |
The rate at which you can substitute one input for another while maintaining the same level of output.
MRTS of KL = MPL/MPK |
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Example: Q = aK + bL
1) What does this production function imply? 2) What is MRTS of KL? |
1) Implies that capital and labor are perfect substitutes 2) MRTS kl = b/a |
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What is significant about the inputs in Leontief isoquants? What does this imply?
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The inputs cannot be substituted - That output is restricted by the smallest input (they are perfect compliments)
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Describe a linear production function |
Inputs are perfect substitutes
Q = f (K,L) |
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Describe a Leontief production function |
Inputs are in fixed proportions, they're perfect compliments
Q = f (K,L) = min (aK, bL) |
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Describe a Cobb-Douglas production Function |
Inputs contain substitutability to a certain degree
Q = f (K,L) = (K^a)(L^b) |
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How to calculate total cost? |
C(K,L) = rK + wL |
