Substitution
Substitutes that are perfectly able to replace one another without affecting output.
Perfect Substitutes
Shows all combinations of Y1 and Y2 that can be produced with the same set of inputs
Production Possibilities Curve
Slope of the isocost line
Px1/Px2
What is the main goal of a enterprise
Maximize revenue, minimize cost
The two basic types of information required to determine an economic optimum
Physical and Economic
Leave no room for choice in the proportion of their use. Perfect complements must be used in a technically prescribed ratio.
Perfect compliments
shows all combinations of the two variable inputs that can be used to produce a given quantity of output
Isoquant
What is another term for production possibilities curve
Production Possibilities Frontier
What does the slop of the isocost line represent
Price Ratio
Land, Labor, Capital, Management
When resources are imperfect substitutes for one another, reductions of X2 will cause output to fall unless larger amounts of X1 are used
imperfect substitutes
Shows all the combinations of the two inputs that equal the same cost
Isocost
Why does a Production Possibility Curve have a downward slope
Competitive Relationships
The loss of revenue compared to the gain in revenue for a different opportunity
Opportunity Cost
T/F The profit-maximizing amount of input to use is that amount where the cost of the last unit used is equal to the value of its marginal product
True
T/F Isoquants for imperfect substitutes are convex to the origin because of diminishing returns
True
Where the Isoquant is tangent to the isocost
Least Cost Combination
Using a graph of an Isoquant and an Isocost line, illustrate the least cost combination of inputs to use in production
Answer on Board
What is the Marginal Rate of Substitution and what slope is expressed by its equation
Rate at which one good can be substituted for another while keeping utility constant
Change in X2/Change in X1
Explain the firms fixed variables in the long run
There are no fixed variables in the long run
T/F The least-cost combination of inputs that are perfect compliments will always be one or the other but not both combined
An isoquant is the graphical equivalent in __________________ economics to what the indifference curve is to __________________ economics.
production; consumption
Graph the line associated with this problem:
The producer wants to explore the different combinations that are available when using two inputs. Input 1 costs $2 and input 2 costs $4. If he has a budget of $20, how would this line look.
Answer on Board
List two feed ingredients that might substitute for corn providing energy to an animal ration
Wheat, Rice, Sugar
The optimal combination of variable inputs to use to produce a given amount of output is found by equating
MRS with the ratio of input prices