B.7 Marginal rate of transformation | Production

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Questions and Answers

What is the marginal rate of transformation equal to?

The derivative of output Y with respect to X

What does a point outside the production possibility frontier represent?

An infeasible production bundle

If a firm moves along the production possibility frontier, what does it imply?

The firm is using the same amount of inputs to produce a different bundle of goods

What is the production possibility frontier?

A curve representing all the possible combinations of two goods that a firm can produce Signup and view all the answers

At what point on the production possibility frontier are all input resources being used?

At a point on the production possibility frontier Signup and view all the answers

What is the absolute value form of the marginal rate of transformation commonly noted as?

The absolute value of the derivative of output Y with respect to X Signup and view all the answers

What happens to the production of good Y when a firm increases its production of good X up to 100 units?

It reduces down to 50 units Signup and view all the answers

What does an increasing marginal rate of transformation mean?

An increasing opportunity cost of producing the extra unit of a good Signup and view all the answers

What is the characteristic of the production possibility frontier with a constant marginal rate of transformation?

The same units of one good have to be given up to produce more units of the other good Signup and view all the answers

What is the characteristic of the graph that portrays the case of perfect substitute X?

The slope has an angle of 45° with each axis Signup and view all the answers

What is the characteristic of the production possibility frontier with a decreasing marginal rate of transformation?

The opportunity cost of producing the extra unit of a good decreases Signup and view all the answers

What happens to the opportunity cost as we move down the production possibility frontier with an increasing marginal rate of transformation?

It increases Signup and view all the answers

What does the marginal rate of transformation indicate in the context of production?

The marginal rate of transformation indicates how many units of good X have to stop being produced in order to produce an extra unit of good Y, while keeping the use of production factors and the technology being used constant. Signup and view all the answers

What is the significance of a point on the production possibility frontier?

A point on the production possibility frontier represents that all input resources are being used and production is at its maximum. Signup and view all the answers

What happens when a firm moves along the production possibility frontier?

The firm will produce a different bundle of goods while using the same amount of total inputs. Signup and view all the answers

What is the relationship between the marginal rate of transformation and the production possibility frontier?

The marginal rate of transformation is related to the slope of the production possibility frontier. Signup and view all the answers

What is implied by the shape of the production possibility frontier?

The shape of the production possibility frontier implies the opportunity cost of producing one good in terms of the other. Signup and view all the answers

What does the slope of the production possibility frontier represent?

The slope of the production possibility frontier represents how a reallocation of the production can end with a different bundle of production while employing the same quantity of inputs. Signup and view all the answers

What is the purpose of the production possibility frontier in economics?

The production possibility frontier is used to illustrate the trade-offs involved in producing different goods and to identify the efficient allocation of resources. Signup and view all the answers

What happens to the opportunity cost when a firm moves from one point to another on the production possibility frontier with a constant marginal rate of transformation?

The opportunity cost remains the same. Signup and view all the answers

How does the production possibility frontier with a decreasing marginal rate of transformation differ from the one with an increasing marginal rate of transformation?

The production possibility frontier with a decreasing marginal rate of transformation has a decreasing opportunity cost, whereas the one with an increasing marginal rate of transformation has an increasing opportunity cost. Signup and view all the answers

What is the significance of a 45° angle with each axis in the production possibility frontier?

It represents a perfect substitute X, where the marginal rate of transformation is equal to 1. Signup and view all the answers

What is the implication of a firm's production being on the production possibility frontier?

It implies that all available resources are being utilized efficiently. Signup and view all the answers

How does the production possibility frontier relate to the concept of opportunity cost?

The production possibility frontier shows the trade-offs between the production of two goods, which represents the opportunity cost of producing one good over the other. Signup and view all the answers

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Study Notes

Marginal Rate of Transformation (MRT)

The marginal rate of transformation (MRT) is the number of units of good X that must be stopped producing to produce an extra unit of good Y, while keeping production factors and technology constant.
MRT can be determined using the formula: absolute value of the derivative of output Y with respect to X.
It represents how much the production of output Y will increase or decrease with every additional unit of output X.

Production Possibility Frontier (PPF)

The production possibility frontier (PPF) represents the various combinations of two goods that a firm can produce.
The horizontal axis represents the production level of good X, and the vertical axis represents the production of good Y.
Points on or inside the PPF are feasible production bundles, while points outside are not feasible.
The slope of the PPF shows how reallocation of production can result in a different bundle of goods while employing the same quantity of inputs.

Shapes of Production Possibility Frontier

Increasing MRT and Opportunity Cost: as you move down the slope, more units of good Y have to be given up to increase the production of good X.
Constant MRT and Opportunity Cost: the same units of one good have to be given up to produce more units of the other good.
Decreasing MRT and Opportunity Cost: the cost in terms of the given up good decreases with every unit given up to produce another unit of the other good.
Perfect Substitute: the slope has an angle of 45° with each axis, and the MRT is equal to 1.

Firm's Production Decisions

A firm can move along the PPF to produce a different bundle of goods while using the same amount of total inputs.
The firm may increase its production of good X while reducing its production of good Y, or vice versa.

B.7 Marginal rate of transformation | Production - Microeconomics

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