When the price of good X increases, the substitution effect leads consumers to buyA. more of good X and more of substitute goods.B. more of good X and less of substitute goods.C. less of good X and less of substitute goods.D. less of good X and more of substitute good.

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When the price of good X increases and all goods (including X) are normal goods, the income effect leads consumers to buyA. less of all goods.B. more of good X and less of other goods.C. more of all goods.D. less of good X and more of other goods.income effect-is the change in demand for a good or service caused by a change in a consumer"s purchasing power resulting from a change in real income. normal goods-is any good for which demand increases when income increases, i.e. with a positive income elasticity of demand.
For which of the following goods would a 10 percent price increase lead to the largest income effect for most consumers?A. SaltB. Movie ticketsC. Cell phone serviceD. Housing
HousingThe price of housing is the most expensive, so even a slight deviation of price creates a huge impact on consumer"s income
The menu at Joe"s coffee shop consists of a variety of coffee drinks, pastries, and sandwiches. The marginal product of an additional worker can be defined as the number of customers that can be served by that worker in a given time period. Joe has been employing one worker, but is considering hiring a second and a third. Explain why the marginal product of the second and third workers might be higher than the first.The marginal product of the second and third workers might be increasing becauseA. the company can purchase more machinery for the additional workers, and output will increase at an increasing rate.B. workers can take advantage of existing machinery, and total output will increase.C. workers of higher quality can be hired, and output will increase at an increasing rate.D. workers can specialize at a separate task, and output will increase at an increasing rate.E. workers can take advantage of existing machinery, and average output will increase.
Which of the following would NOT be a factor of production in a bakery?A. AdvertisingB. FlourC. OvensD. Labor
The short run isA. a period of time in which no inputs can be varied.B. less than one year.C. a period of time in which all inputs can be varied.D.a period of time during which some inputs can be varied and some cannot.
D.a period of time during which some inputs can be varied and some cannot.short run-a period of time where at least one variable is fixed
What is a production function? How does a long-run production function differ from a short-run production function?A. A function showing the highest output that a firm can produce for every specified combination of inputs. In the long-run production function, all inputs are variable, whereas the short-run production function has at least one fixed input.B. A function showing the highest output that a firm can produce for every specified combination of inputs. In the short-run production function, all inputs are variable, whereas the long-run production function has at least one fixed input.C. A function showing the minimum output that a firm can produce for every specified combination of inputs. In the short-run production function, all inputs are variable, whereas the long-run production function has at least one fixed input..D. A function showing the minimum output that a firm can produce for every specified combination of inputs. In the long-run production function, all inputs are variable, whereas the short-run production function has at least one fixed input.
A. A function showing the highest output that a firm can produce for every specified combination of inputs. In the long-run production function, all inputs are variable, whereas the short-run production function has at least one fixed input.
Why are isocost lines straight lines?Isocost lines are straight because the slope of such lines ___________________.A. equals the ratio of economic costs to accounting costs, and this ratio is decreasingB. equals the ratio of input prices, and this ratio is fixedC. equals the ratio of input prices, and this ratio is decreasingD. equals the marginal rate of technical substitution, which is fixedE. equals the ratio of the marginal products of the inputs, and this ratio is fixed
An isocost line showsA. all the possible output levels that can be produced at a given total cost.B. all the input combinations that produce the same total output.C. the total cost of producing each possible level of output.D. all the input combinations that can be purchased at a given total cost.
3. Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the rental cost of capital is $25 per hour, the slope of the isocost curve will be A. -4/5. B. 25/20 or 1.25. C. 500. D. 25/500.
Ans: -4 / 5Explanation:If the firm will spends $500 to purchase only labor, it can purchase 500 / 20 = 25 laborer and if the firm will spends $500 to purchase only capital, it can purchase 500 / 25 = 20 capital.slope of isocost curve = -20 / 25 = -4 / 5
Suppose that the price of labor ​(PL​) is​ $10 and the price of capital ​(PK​) is​ $20. What is the equation of the isocost line corresponding to a total cost of​ $100? A. 100​ = 10L​ + 20K B. 100​ = 30​ (L +​ K) C. PL​ + 20PK D. 100​ + 30 ​(PL​ + PK​) E. None of the above
Total cost= W L + r
KWage = WL= number of laborsr= price of capitalK= number of unit of capitalTotal cost = 10L + 20K100 = 10L+20KThe equation of isocost lineHence option A is the correct answer.
At the optimum combination of two​ inputs A. the marginal rate of technical substitution equals the ratio of input prices. B. the slopes of the isoquant and isocost curves are equal. C. costs are minimized for the production of a given output. D. all of the above. E. A and C only.
A firm uses 80 hours of labor and 6 units of capital to produce​ 10,000 gadgets per day.​ Labor"s marginal product is 4 gadgets per hour and the marginal product of capital is 20 gadgets per unit. Each unit of labor costs​ $8 per hour and each unit of capital costs​ $50 per unit. If the firm wants to continue producing​ 10,000 gadgets per day at the lowest possible​ cost, it shouldA. use more labor and less capital.B. use less of both inputs.C.use more capital and less labor.D.continue using 80 hours of labor and 6 units of capital.
A change in the consumption of a good resulting from an increase in purchasing power, with the relative price (or the price ratio) held constant, is referred to as...a. the substitution effectb. the income effectc. the wealth effectd. the total effect of a price change
After the price of a good falls, consumers will tend to buy more of the good that is now cheaper and less of the good that is now relatively more expensive. This fact is called...a. the substitution effectb. the income effectc. the wealth effectd. the price effect
A firm uses 80 hours of labor and 6 units of capital to produce​ 10,000 gadgets per day.​ Labor"s marginal product is 4 gadgets per hour and the marginal product of capital is 20 gadgets per unit. Each unit of labor costs​ $8 per hour and each unit of capital costs​ $50 per unit. If the firm wants to continue producing​ 10,000 gadgets per day at the lowest possible​ cost, it shouldA. use more labor and less capital.B. use less of both inputs.C.use more capital and less labor.D.continue using 80 hours of labor and 6 units of capital.
A. uses more labor and less capital
What is the income effect?
a change in quantity demanded caused by a change in consumer income
A curve that illustrates the various combinations of capital (K) and labor (L) that are associated with the same level of output is called...a. the total productb. the isocostc. the average productd. the isoquant
A construction company builds roads with machinery (K) and labor (L). If you plot the isoquants for the firm"sproduction function (i.e., labor on the x-axis and machinery on the y-axis), then a point on the isoquant with a small MRTS (in absolute value) is associated with high use and low use.a. labor, capitalb. capital, laborc. concrete, graveld. None of the above
A production function in which capital and labor are perfect substitutes would be represented by a set of isoquants that are...a. L-shapedb. Convexc. Concaved. Linear
An L-shaped isoquant...a. is impossible.b. would indicate that the firm could switch from one output to another.c. would indicate that, in the production process, capital and labor are perfect substitutes.d. would indicate that, in the production process, capital and labor must be used in fixed proportion.
An isocost line reveals the...a. input combinations that can be purchased for a given total cost.b. costs of inputs needed to produce along an isoquant.c. output combinations that can be produced for a given total cost.d. None of the above.
.the marginal rate of technical substitution equals the ratio of input prices. the slopes of the isoquant and isocost curves are equal. costs are minimized for the production of a given output.
In the long run (LR)In the LR both capital and labor are variable.In other words, if a firm wants to increase output in the LR they can adjust both labor and capital.We will assume that we are in the LR (i.e., our production functionwill include both L and K)
A function showing the highest output that a firm can produce for every specified combination of inputs
What is production technology and how does it differ from a production function?A. It is a function showing the minimum output that a firm can produce for every specified combination of inputs and is the same as the production function.B. It is a function showing the highest output that a firm can produce for every specified combination of inputs and is the same as a production function.C. It is a function showing the minimum output that a firm can produce for every specified combination of​ inputs, while the production function shows the maximum output that can be produced.D. It is a function showing the highest output that a firm can produce for every specified combination of​ inputs, while the production function shows the minimum output that can be produced.
B. It is a function showing the highest output that a firm can produce for every specified combination of inputs and is the same as a production function.
In the long run...a. capital is fixed, but labor is variable.b. labor is fixed, but capital is variable.c. both capital and labor are variable.d. both capital and labor are fixed.
A change in the consumption of a good resulting from an increase in purchasing power, with the relative price (orthe price ratio) held constant, is referred to as...
After the price of a good falls, consumers will tend to buy more of the good that is now cheaper and less of thegood that is now relatively more expensive. This fact is called...
In the long run...a. capital is fixed, but labor is variable.b. labor is fixed, but capital is variable.c. both capital and labor are variable.d. both capital and labor are fixed.
A curve that illustrates the various combinations of capital (K) and labor (L) that are associated with the samelevel of output is called...a. the total productb. the isocostc. the average productd. the isoquant
A construction company builds roads with machinery (K) and labor (L). If you plot the isoquants for the firm"sproduction function (i.e., labor on the x-axis and machinery on the y-axis), then a point on the isoquant with a small MRTS (in absolute value) is associated with high use and low use.

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A production function in which capital and labor are perfect substitutes would be represented by a set of isoquantsthat are...
After the price of a good falls, consumers will tend to buy more of the good that is now cheaper and less of the good that is now relatively more expensive. This fact is called...a. the substitution effectb. the income effectc. the wealth effectd. the price effect
An isocost line reveals the...a. input combinations that can be purchased for a given total cost.b. costs of inputs needed to produce along an isoquant.c. output combinations that can be produced for a given total cost.d. None of the above
Refer to the above figure. Which combination of capital (K) and labor (L) represents the firm"s optimal combination?
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