Microeconomics: Key Business Theory Questions
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ScribdTranslationsMicroeconomics: Key Business Theory Questions
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ScribdTranslationsQUESTIONS ON BUSINESS THEORY
MICROECONOMICS I
PROFESSIONAL SCHOOL OF ECONOMICS
1. Why is it likely that the marginal product of labor will increase initially in the short term?
as a greater amount of the variable factor is hired?
The marginal product of labor depends on the amount of capital used, this first
increase and then decrease, labor is the most easily adjustable factor in the short term.
the marginal product of labor increases as the amount of labor increases due to a greater
specialization and the division of labor.
2. Why does labor end up showing decreasing marginal returns in the long term?
QUESTION 4[Link]
In the long run, the marginal product decreases because an increasing amount of labor must be shared.
a fixed amount of capital. This is known as the law of diminishing returns.
You are a businessman trying to fill a vacancy on an assembly line.
Are you more concerned about the average product of labor or the marginal product of labor?
last hired person? If you notice that your average product is starting to decline,
Should more workers be hired? What does this situation imply about the marginal product of
his last hired worker?
The average product increases as the amount of work increases but decreases at the
long
I am more concerned about the marginal product of labor of the last person I hire because I
indicate if my production system has reached its maximum capacity or on the contrary
allows to continue growing
Under the resulting conditions, it would not be good or efficient to hire more workers, as it would not be
following the maximum capacity, there may be many other aspects...
What does this situation imply? It will begin to decrease as well.
4. The isoquants can be convex, linear or L-shaped. What does each one tell you?
What do these forms say about the nature of the production function? What does each of these tell you?
ways about the TMST?
They always have a negative slope since the marginal product of all factors is positive.
form can be described through the marginal rate of technical substitution at each point of the
The isocost line at the MRTS is the amount by which capital can be reduced when one more unit is used.
of work, in such a way that production remains constant
5. Can an isoquant ever have a positive slope? Explain your answer.
Isoquants always have a negative slope, as the marginal product of all factors is positive.
The shape of each isoquant can be described by the marginal rate of technical substitution at each point.
point of the isoquant. The marginal rate of technical substitution of capital for labor (MRTS) is the amount
what can capital be reduced to when one more unit of labor is used, in such a way that production
remains constant.
6. Explain the term 'marginal rate of technical substitution'. What does MRTS = 4 mean?
The shape of each isoquant can be described by the marginal rate of technical substitution at each
point of the isoquant. The marginal rate of technical substitution of capital for labor (MRTS)
7. Explain why it is likely that the marginal rate of technical substitution will decrease.
as capital is replaced by more labor?
The marginal rate of technical substitution of capital for labor (RMST) is the amount by which one can
reduce the capital when one more unit of work is used, in such a way that production remains
constant.
8. Can a company have a production function that shows increasing returns to scale?
scale, constants, and decreasing as production increases? Analyze the
answer.
In long-term analysis, we tend to focus attention on the choice of scale or volume of
operations of the company. Constant returns to scale mean that doubling all the
factors cause a duplication of the level of production. There are increasing returns to scale when...
Production more than doubles when the factors are doubled, while there are diminishing returns.
of scaling up, production does not reach to double.
9. Suppose that a chair manufacturer observes that the marginal rate of technical substitution of
work per capital in its production process is significantly greater than the quotient
between the rental of the machinery and the salary of the assembly line work. How
Should it alter its use of capital and labor to minimize production costs?
To minimize costs, the manufacturer must use a combination of capital and labor.
such a way that the rate of substitution of labor for capital in its production process is equal to
the exchange rate between capital and labor in foreign markets. The manufacturer would be better off if
increase the use of capital and reduce the use of labor. By changing a little of the work
By capital, the marginal rate of technical substitution, MRTS, decreases, the manufacturer will continue
replace capital with labor to the extent that the MRTS would be equal to the ratio between the
rental rate of capital and the wages paid
10. Assume that the marginal cost of production is increasing. Can you know if the variable cost
Is the average increasing or decreasing? Explain your answer.
An increase in marginal cost is consistent with an increase in average variable cost or
decreases. If the marginal cost is less (greater) than the average variable cost, each unit
Productionadditionincreasesthetotalcostoffewer(more)thantheunits
previous,whichimpliesthatheAVC(averagevariablecost)is
decreasing (increasing). Therefore, it is necessary to know whether the marginal cost is
greater or less than the average variable cost to determine if the AVC is increasing or
decreasing
11. If the average cost curves of the company have a U shape, why does it reach its curve of
average variable cost at its minimum point at a production level lower than the curve of
average total cost?
12. If a company enjoys economies of scale up to a certain level of production and the
cost increases proportionally with the level of production, what can be said
About the shape of its long-term average cost curve?
13. How does the long-term expansion path of the company vary when the price of a
factor?
14. Is the company's expansion path always a straight line?