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Micro Economics




                    Notes          4.   Which of the following statements best describes the general form of a production function
                                       and why?
                                       (a)   It is a purely technological relationship between quantities of input and quantities of
                                            output.

                                       (b)   It represents the technology of an organisation, sector of an economy.
                                       (c)   Prices of inputs or of the output do not enter into the production function.

                                       (d)   It is a flow concept describing the transformation of inputs into output per unit of
                                            time.
                                   5.  A firm has a production function of the following form Q = K + 2L Where Q is output, K

                                       is the capital input and L is the labour input per time period. The wage rate and the rental
                                       rate on capital is ` 50 per unit. Find out the cost minimising output.

                                   6.  A firm faces the following long run cost function:
                                                                TC = q  – 40q  + 450q
                                                                           2
                                                                      3
                                       Calculate the quantity (q) and the average cost (AC), when the latter will be at its
                                       minimum.

                                   7.  If a firm moves from one point on a production isoquant to another, which of the following
                                       will not happen and why?
                                       (a)   A change in the ratio in which the inputs are combined.
                                       (b)   A change in the marginal products of the inputs.
                                       (c)   A change in the rate of technical substitution.
                                       (d)   A change in the level of output.
                                   8.   “The marginal rate of technical substitution is numerically equal to the negative of the
                                       slope of an isoquant.” Comment.
                                   9.   Can isoquants be drawn in different shapes? Examine their characteristics.

                                   10.   How can you show the total cost or expenditure of the firm in a graphical manner?
                                   Answers: Self Assessment

                                   1.  transformation                    2.   Inputs

                                   3.  Variable Inputs                   4.   short run
                                   5.   Q = f(X , X ……………X )             6.   output
                                             1  2          k
                                   7.  perfect                           8.   limited
                                   9.   limited                          10.   Marginal Rate of Technical Substitution

                                   7.11 Further Readings




                                   Books       Dr. Atmanand, Managerial Economics, Excel Books, Delhi.
                                               H. Craig Patersen, Managerial Economics, Prentice Hall.
                                               Samuel Bowles, Microeconomics: Behavior, Institutions and Evolution, Oxford.

                                               Sampat Mukherjee, Microeconomics, Prentice Hall.



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