Answer to Question #203072 in Microeconomics for Ishita

Question

state if the statement is true, false or uncertain.

1. If a firm uses 10 units of labour and 20 units of capital to produce 10 units of output. The marginal product of labour is 0.5. If there are constant returns to scale the marginal product must be 0.25.
2. If a firm uses 10 units of labour and 30 units of capital to produce 10 units of output. The marginal product of labour is 0.5. If there are constant returns to scale the marginal product must be 0.25.
3.     Consider the elastcitiy of output with respect to labour input is dQ/Q/dL/L  . The elasticity of output is equal to 1 when marginal product of labour is equal to the average product of labour.
4.     As the price of coffee rises, I drink less tea. Hence my income elasticity for tea is negative.
5.    If we observe an individual to demand less of a good as its price falls, we may conclude that the good is inferior for him.  
6. An individuals demand curve cannot be upward sloping at all prices.

Answer 1

(1)True

Total output by the labor = marginal product of labor * quantity of labor

$=0.5\times10\\=5$

Total output by the capital = marginal product of capital * quantity of capital

$=0.25\times20\\=5$

(2) False

Total output by the labor = marginal product of labor * quantity of labor

$=0.5\times10\\=5$

Total output by the capital = marginal product of capital * quantity of capital

$=0.25\times30\\=7.5$

(3)True

The output elasticity of labor is equal to one at the level of output where average product is at a maximum and the marginal product of labor intersects the average product of labor at its minimum.

(4)False

Negative income elasticity is associated with inferior good. When income rise people tend to buy low of it. Coffee is has negative income elasticity and not tea.

(5)True

When price of an inferior good falls, its negative income effect will tend to reduce the quantity purchased.

(6)True

Giffen and veblen goods have an upward sloping demand curves while normal goods have downward sloping demand curves.