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Three Economic Questions




Question;(1)What does it mean when we say that the marginal rate of technical substitution (RTS) has a ?negative? sign? If the RTS = MPL/MPK, and the ratio of MPL/MPK is rising along along an isoquant, are we moving up or down the isoquant? Given that we are either moving up or down the isoquant, what is the significance of the change in the ratio of the marginal products of the two inputs, labor and capital?(2)A firm faces an input technology that does NOT allow substitution between the twoinputs, labor and capital. Draw a possible isoquant map for this firm. Okay, now technology changes in a way that still does NOT allow substitution between the units at any level of production, but uses more of one of the inputs relative to the other. How does that change the isoquant map? Now, suddenly a new technology arises whereby all of the output is produced with capital without labor (say, completely robotic production).How does that change in isoquant map?="p0">(3) Let?s say that you want to go into Frozen Yoghurt Shop that offers a huge assortment ofyoghurt flavors, serving sizes, fat contents, and toppings. The output of the shop is the variety of yoghurt products and the pleasant environment of eating the ice cream. Okay, name FIVE important inputs to the production function of this ice cream shop.Which of these inputs would you classify generally as capital input and which as a laborinput?="p0">


Paper#56185 | Written in 18-Jul-2015

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