Consider a firm that uses two inputs, labor and capital, to produce its output. Assume labor is measured on the horizontal axis and capital on the vertical axis
Which of the following best explains why the marginal rate of technical substitution decreases in absolute value as we move down an isoquant?
A) The law of imperfect substitutability: labor and capital are not perfect substitutes; therefore, a firm must replace decreases in capital with increases in labor.
B) The law of diminishing returns: for a given decline in capital, decreasing amounts of labor are required to produce the same level of output.
C) The law of increasing marginal opportunity cost: if a firm uses less and less capital it must use more and more labor, which drives up the cost of labor.
D) The law of diminishing returns: for a given decline in capital, increasing amounts of labor are required to produce the same level of output.
D
You might also like to view...
Refer to Figure 19-5. The Chinese government pegs the yuan to the dollar, at one of the specified exchange rates on the graph, such that it overvalues its currency. Using the figure above, this would generate
A) a shortage of yuan equal to 500 million. B) a shortage of yuan equal to 100 million. C) a surplus of yuan equal to 700 million. D) a surplus of yuan equal to 200 million.
The measure used to determine whether two products are substitutes or complements is called the: a. price elasticity of demand
b. income elasticity of demand. c. cross-price elasticity of demand. d. inverse elasticity of demand.
Government failure
A. Results when government intervention fails to improve market outcomes. B. Occurs whenever the government intervenes in the market. C. Occurs whenever there is market failure. D. Does not occur; only market failure occurs.
Why is it difficult to get a cab on a rainy day?
A. The demand for cabs shifts left and the quantity of cabs supplied falls B. Cab drivers must drive much slower when it rains C. Cab drivers have backward bending daily supply curve D. Cabs don't like to work on rainy day