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ECON100A_12

# ECON100A_12 - Review 1 Question1:IfMPLisfalling,thensoisAPL...

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1/4/2008 1 Review

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1/4/2008 2 Question 1:  If MP L  is falling, then so is AP L A. True B. False C. Can’t tell AP L MP L L
1/4/2008 3 Question 2:  A firm’s production function is F(L, K)=LK. It  currently uses 6 units of L and 3 of K. Which would give it  more additional production: A. 1 unit of labor (L) B. 1 unit of capital (K).

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1/4/2008 4 Question 3:  A firm’s production function is F(L, K)=LK. It  currently uses 6 units of L and 3 of K. If it lost a unit of labor,  how much extra capital would it need to be just as productive  as it was before?  A. ½ B. 2 C. Can’t tell
1/4/2008 5 Isoquants Isoquant: Set of input bundles that yield the same output Analogous to, but not the same as indifference curves! L K L 0 L 1 K 1 K 0

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1/4/2008 6 MRTS – Marginal Rate of Technical  Substitution MRTS(L, K) If you took away 1 unit of labor, how much extra capital firm would need to maintain same level of production as before. Note 1: Depends on L and K Note 2: This is the slope of the isoquant at the point L, K . MRTS(L,K)=MP L /MP K = same logic as we used in consumer theory for MRS. L K Slope = - MP L /MP K K K L F L K L F ) , ( ) , ( Analogous to, but not the same as MRS!!!
1/4/2008 7 Hypothesis of Diminishing MRTS If you have more L, then when you give up a unit of L, it takes less K to bring you back to the same level of production Test: Does K↓ L ↑ imply MRTS ↓?

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