Costs and Marginal Cost
CHAPTER 6
PRODUCTION
EXERCISES
4. A political campaign manager must decide whether to emphasize television advertisements or letters to potential voters in a reelection campaign. Describe the production function for campaign votes. How might information about this function (such as the shape of the isoquants) help the campaign manager to plan strategy?
The output of concern to the campaign manager is the number of votes. The production function has two inputs, television advertising and letters. The use of these inputs requires knowledge of the substitution possibilities between them. If the inputs are perfect substitutes for example, the isoquants are straight lines, and the campaign manager should use only the less expensive input in this case. If the inputs are not perfect substitutes, the isoquants will have a convex shape. The campaign manager should then spend the campaign’s budget on the combination of the two inputs will that maximize the number of votes. 5. For each of the following examples, draw a representative isoquant. What can you say about the marginal rate of technical substitution in each case?
a. A firm can hire only full-time employees to produce its output, or it can hire some combination of full-time and part-time employees. For each full-time worker let go, the firm must hire an increasing number of temporary employees to maintain the same level of output.
Place part-time workers on the vertical axis and full-time workers on the horizontal. The slope of the isoquant measures the number of part-time workers that can be exchanged for a full-time worker while still maintaining output. At the bottom end of the isoquant, at point A, the isoquant hits the full-time axis because it is possible to produce with full-time workers only and no part-timers. As we move up the isoquant and give up full-time workers, we must hire more and more part-time workers to replace each full-time worker. The slope increases (in absolute
PRODUCTION
EXERCISES
4. A political campaign manager must decide whether to emphasize television advertisements or letters to potential voters in a reelection campaign. Describe the production function for campaign votes. How might information about this function (such as the shape of the isoquants) help the campaign manager to plan strategy?
The output of concern to the campaign manager is the number of votes. The production function has two inputs, television advertising and letters. The use of these inputs requires knowledge of the substitution possibilities between them. If the inputs are perfect substitutes for example, the isoquants are straight lines, and the campaign manager should use only the less expensive input in this case. If the inputs are not perfect substitutes, the isoquants will have a convex shape. The campaign manager should then spend the campaign’s budget on the combination of the two inputs will that maximize the number of votes. 5. For each of the following examples, draw a representative isoquant. What can you say about the marginal rate of technical substitution in each case?
a. A firm can hire only full-time employees to produce its output, or it can hire some combination of full-time and part-time employees. For each full-time worker let go, the firm must hire an increasing number of temporary employees to maintain the same level of output.
Place part-time workers on the vertical axis and full-time workers on the horizontal. The slope of the isoquant measures the number of part-time workers that can be exchanged for a full-time worker while still maintaining output. At the bottom end of the isoquant, at point A, the isoquant hits the full-time axis because it is possible to produce with full-time workers only and no part-timers. As we move up the isoquant and give up full-time workers, we must hire more and more part-time workers to replace each full-time worker. The slope increases (in absolute