Input procurement (Ch.6)
Buyer and seller meet and then part ways, No long term relationship, Quick and simple
Spot Exchange
How does a firm get employees to do what they want them to do?
Incentives
(TRUE OR FALSE)
In the Long run, at least one input cannot be changed.
Fales
If the change in quantity is 4 and the change in labor is 2 what is MPL?
MPL = 2
K and L cannot be substituted for each other and are used in fixed proportion in this production function.
Leontieff
Legal agreement between buyer and seller, continuing relationship
Contract
The conflict experienced between the owner of the firm and the employee.
Owner wants to maximize profit, employee wants to maximize compensation
What is the Long Run Average Total Costs Curve (LRATC) equation?
Total cost/ Quantity
If the Price of an output is $10 and the MPK is 5 what is the VMPK?
VMPK = 50
In the function Q= 4K + 3L, when K = 2 and L = 3, what is your output?
Q = 17
2 or more firms merge, firms are involved with different steps in production process
Vertical Integration
Problem that results from the differing objectives of people attached to a firm.
Principle Agent Problem
A firm increases its use of all inputs by a certain percent and its output increases by a larger percent
Decreasing returns to scale (Diseconomies of Scale)
If (MPL/w) < (MPK/r) then the firm should...?
Use more capital (K)
If Q=min {4K, 3L}, When K = 10 and L = 3, what is your output?
Q = 40
Spot exchanges are less attractive if...
If specialized investments are required
What is the problem with the implementation of incentives/ controls within a firm (I.e. cameras, screen motoring, etc.)
Indicates mistrust from employer
A firm is able to produce two or more outputs at a lower average total cost than if they were produced by multiple firms.
Economies of Scope
If 5 workers can create an output of 10,000 units, what is the Average Product of Labor (APL)?
APL = 2,000
Given the function Q = 20L0.5K0.5, what is the output if L = 25 and K= 1?
Q =100
If contracting costs are high then...
Longer contracts become desirable and vertical integration becomes more attractive
In a mutually beneficial approach...
Success of the employee = the success of the firm
What is the difference in the distance between the Average Total Cost curve (ATC) and Average Variable Cost curve (AVC)?
Average Fixed Cost (AFC)
What rule states that a firm should continue using additional inputs so long as the added benefit is at least as large as the added cost?
Optimum Input Rule
What is the MPK given the output function:
Q = 30L1/3*K1/2 ?
MPK = 15L1/3K-1/2