Q Search Question 1 (20 points) For each of the following assertions, please ind
ID: 1140460 • Letter: Q
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Q Search Question 1 (20 points) For each of the following assertions, please indicate whether they are true or false. No credit will be given without an explanation as to why your claim is correct. a. (4 points) Assertion: The Law of Diminishing Marginal Product implies that the short run production function must be concave everywhere. b. (4 points) Assertion: In the short run, if the marginal product of labor curve is decreasing, then it is below the average product of labor curve c. (4 points) There are two firms: one has production function f(K, L) K+L and the other has production function f(K, L) 2(K L)+ 100. These firms have different technologies since they produce different s with the same inputs. Assertion: These two firms have the same shaped isoquants. d. (4 points) A waffe shop has a Cobb Douglas production function and measures the marginal rate of technical substitution (MRTSUx) at MPL/MPk 3. The prices of labor and capital faced by the shop are such that currently W/R Assertion: The waffe shop can lower costs (holding output fixed) by laying off some of its labor force and using mbre capital. e. (4 points) A ceramics company has a fixed-proportion (perfect complements) production function. It currently produces 1000 ceramic bowls per month for its only customer. The price of capital falls, but the firm must still produce 1000 bowls per month. Let all inputs be variable. Assertion: The firm will not hire or fire any new workers.SSSSRMAMRExplanation / Answer
Answer.
a. True. The production curve from the point of inflection in stage 1 upto stage 2 of production where total product is maximum, is concave downward throughout. Thereafter, total product curve decreases or marginal product curve is negative.
b. True. In the stage 1 after point of inflection, marginal product starts decreasing but the fixed factors are so large that average product still continues to rise. This continues till the end of stage 1 and then average product starts falling but marginal product falls sharply as compared to average product. Hence, marginal product is below the average product.
c. False. This is because the first function shows the case of perfect substitutes but the second case does not. It is cubical function the shape of which is different from the case of perfect substitutes. Since the technology is different, the production functions are differently placed.
d. True. For optimization, MPL/MPK has to be increased to 4. This will happen if MPL increases and this can be done by substituting capital for labour. Hence, some labour has to be laid off.
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