Question 1

What is an isoquant? What is the slope of an isoquant?

Accepted Answer

The answer of What is an isoquant? What is the...

Question 2

Use the following graph to answer the following questions.  a. If the wage rate and the rental price of machines are both $50 and total cost is $800, is the cost-minimizing point A, B, or C?
b. If the wage rate is $40, the rental price of equipment is $120, and total cost is $1,200, is the cost-minimizing point A, B, or C?
c. If the wage rate is $60, the rental price of equipment is $90, and total cost is $1,800, is the cost-minimizing point A, B, or C?

Accepted Answer

The answer of Use the following graph to answer the...

Question 3

Firms in different countries that face different input prices may produce the same good using different combinations of inputs, even though they have access to the same technology.

Accepted Answer

This is because the relative prices of inputs, such as labor and capital, may differ between countries due to factors like wage rates, interest rates, and resource endowments. As a result, firms may choose to substitute one input for another in order to minimize costs and maximize profits, leading to different input combinations despite using the same technology.

Question 4

If the marginal product of labor is 45 units of output and the marginal product of capital is 56 units of output while the wage rate is $20 per worker and the cost of capital is $28 per machine, are these two inputs being used in the least cost combination and what should be done if they are not?

Accepted Answer

The answer of If the marginal product of labor is...

Question 5

Joan Jillson owns a coffee shop. Assume that the marginal product of the labor Joan employs (MPL) equals 500 cups per week and the marginal product of her shop's capital (MPK) equals 1,000. Assume also that the wage (w) Joan pays her workers equals $250 per week and the rental price (r) of her capital - her coffee machines - equals $500 per week. Which of the following correctly analyzes whether Joan is minimizing her costs?

Accepted Answer

To determine whether Joan is minimizing her costs, we need to calculate the ratio of MPK to r (the price of capital) and the ratio of MPL to w (the price of labor), and then compare the two ratios. If MPK/r equals MPL/w, then Joan is minimizing her costs.

MPK/r = 1000/500 = 2
MPL/w = 500/250 = 2

Since the two ratios are equal, Joan is minimizing her costs by combining labor and capital in the most efficient way.

Question 6

The slope of an isocost line determines the marginal rate of substitution.

Accepted Answer

The slope of an isocost line determines the relative price of the two inputs, while the slope of an isoquant line determines the marginal rate of substitution.

Question 7

An isoquant is a curve that shows all the combinations of two inputs that will produce the same level of output.

Accepted Answer

This is the definition of an isoquant.

Question 8

The slope of an isoquant is equal to the ratio of the price of the input on the horizontal axis divided by the price of the input on the vertical axis, multiplied by -1.

Accepted Answer

The answer of The slope of an isoquant is equal...

Question 9

What is an isocost line? What is the slope of an isocost line?

Accepted Answer

The answer of What is an isocost line? What is...

Question 10

Economists Cade Massey and Richard Thaler analyzed whether teams in the National Football League distributed salaries efficiently. Massey and Thaler found that

Accepted Answer

Massey and Thaler found that the first few players selected in the first round of the NFL draft are paid much higher salaries relative to their marginal products than players drafted later in the first round. This suggests that teams may not be distributing salaries efficiently and may be overvaluing high draft picks.

Quiz 11: Technology, Production, and Costs