The marginal rate of technical substitution isThe rate at which a producer is able to exchange, without affecting thequantity of output produced, a little bit of one input for a little bit of anotherinput.b. The rate at which a producer is able to exchange, without affecting the totalcost of inputs, a little bit of one input for a little bit of another input.The rate at which a producer is able to exchange, without affecting the totalinputs used, a little bit of one output for a little bit of another output.d. A measure of the ease or difficulty with which a producer can substitute onetechnique of production for another

The marginal rate of technical substitution is the rate at which a producer is able to exchange,…

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Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter11: The Firm: Production And Costs

Section: Chapter Questions

Problem 8P

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If two painters can paint 200 square feet of wall in an hour, and three painters can paint 275 square feet, what is the marginal product of the third painter?
Give the three reasons that explain why the division of labor increases an economys level of production.
69. If the price of labor falls relative to the price of capital, and as a result the quantity of capital employed decreases, it can be concluded that: A. The substitution effect is greater than the output effectB. The output effect is greater than the substitution effectC. The income effect is greater than the output effectD. Labor cannot be easily substituted for capital
Suppose there are two inputs for production, labor and capital. The firm’s production process isdefined by the following production functiony=f(L,K).Howdoweinterpretthefirm’smarginalrateof technical substitution? a)How many units of capital the firm would have to give up in order to attain one more unit oflabor, such that the firm maintains the same cost level b)How many units of capital the firm would have to give up in order to attain one more unit oflabor, such that the firm produces one more unit of output c)How many units of capital the firm would have to give up in order to attain one more unit oflabor, such that the firm maintains the same level of production d)a) and b) are correct e)a) and c) are correct
(a) Explain with the help of a graph the effect of an increase in the relative price of a labor-intensive good on input choice. (b) “Generally, an economy will tend to be relatively effective atproducing goods that are intensive in the factors with which the country is relatively wellendowed.” Explain the above statement with the help of a graph.
Consider a firm for which production depends on two normal inputs, labor and capital, with prices w and r, respectively. Initially the firm faces market prices of w = 6 and r = 4. These prices then shift to w = 4 and r = 2.a. In which direction will the substitution effect change the firm’s employment and capital s tock?b. In which direction will the scale effect change the firm’s employment and capital stock?c. Can we say conclusively whether the firm will use more or less labor? More or less c apital?
. If Al-quds firm has $ 800 to be spent on two factors of production, the price of labour PL = $ 10 , and the price of machine Pm = $ 4. 1. Derive and draw the Iso-cost line ? 2. Derive the Iso-cost line formula ? 3. If the producer equilibrium occurs when the number of labor is 60 workers, and the output is 500 units. Calculate and draw the quantity of machines that achieves the equilibrium ?
The nation of Ectenia has 20 competitive appleorchards, all of which sell apples at the world priceof $2 per apple. The following equations describethe production function and the marginal product oflabor in each orchard:100100 2 ,2 5 25 2Q L LMPL Lwhere Q is the number of apples produced in a day,L is the number of workers, and MPL is the marginalproduct of labor.a. What is each orchard’s labor demand as a functionof the daily wage W? What is the market’s labordemand?b. Ectenia has 200 workers who supply their laborinelastically. Solve for the wage W. How manyworkers does each orchard hire? How much profitdoes each orchard owner make?c. Calculate what happens to the income of workersand orchard owners if the world price doubles to$4 per apple.d. Now suppose that the price is back at $2 perapple but a hurricane destroys half the orchards.Calculate how the hurricane affects the income ofeach worker and of each remaining orchard owner.What happens to the income of Ectenia as a whole?
Answer the Constrained Optimization: Cobb-Douglas Production Function:1. Based from the factor shares of the two inputs, what will happen to the number of output ifit the firm decides to triple both the amount of labor and capital?2. State the optimization problem of the firm.3. Solve for the formulas of the Marginal Product of Labor (MPL), and Marginal product ofCapital (MPK)4. Using your knowledge of the tangency condition in Producer’s theory, find the combinationof K and L that the firm should use to produce the maximum possible output. Do not solvethe problem using the Lagrangian method.Note: The tangency conditions just states that the slope of the production function must beequal to the slope of the isocost function.5. What is the maximum possible output that the firm could earn given the constraint it faces?
(a) Explain the substitution and output effect of a decrease in price of labor from the attached figure (b) Explain the substitution and output effect of a increase in price of labor from the attached figure
If the first 5 units of labour produce 3 units of output each, and the second 5 units of labour produce 11 units each, then total product at 5 and 10 units of labour are Select one: 15 and 55 units 160 and 40 units 5 and 5 units 15 and 70 units
Distinguish between the Marginal Rate of Technical Substitution and Elasticity of Substitution in production

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