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Unformatted text preview: 2.) Perfect complements. Budget line constraint - = + Ybudget PGood1X PGood2Z To find intercepts on graph: YPGood1 and YPGood2 Budget linear line: =-B YPGood1 PGood2PGood1Z The slope indicates the rate at which the two goods can be substituted without changing the amount of money pent and so is called the marginal rate of transformation (MRT). Slope of InDifference curve = Slope of budget line MRS = MRT Utility Maximization: = MUGood1PGood1 MUGood2PGood2 Average Products of Labor (APL) and Capital (APK): = APL QL = APK QK Marginal Products: = = MPL Q L keep K fixed MPk Q K keep L fixed Diminishing Marginal Product of Labour overcrowding of workers MRTS (Marginal Rate of technical Substitution) Slope of the ISOQUANT - MPLMPK Returns to Scale Eg. = . . Q 10L0 4K0 5 Easy check. Exponents: 0.4+0.5=0.9<1 Decreasing Returns to scale....
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- Winter '09