Principles of Economics
7th Edition
ISBN: 9781305156043
Author: N. Gregory Mankiw
Publisher: Cengage Learning US
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Question
Chapter 35, Problem 1QR
To determine
Short-run Phillips curve .
Expert Solution & Answer
Explanation of Solution
Figure 1 shows the short-run Phillips curve.
In Figure 1, the vertical axis measures the inflation rate and the horizontal axis measures the
Economics Concept Introduction
Concept introduction:
Philips curve: Short-run Phillips curve shows the inverse relationship between inflation and unemployment. The short-run Phillips curve is a downward sloping curve.
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2.) Using the line drawing
tool,
plot and label the isocost line.
Carefully follow the instructions above, and only draw the required objects.
FILL IN BLANK
d. Now suppose the price of labour rises to $5 per unit, but the firm still wants to produce 500 tires per day. Explain how a cost-minimizing firm adjusts to this change (with no change in technology).
A cost-minimizing firm will be producing on
▼
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isocost line. The firm will use
▼
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▼
less
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a higher point on the same
a lower point on the same
a lower
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QK
Using the graph on the right, determine how the firm
should change the quantity of the production factors in
order to reduce the costs.
The firm that is producing at point A can reduce its costs
for producing 2000 units by employing
A. same capital and more labour.
B. less capital and more labour.
○ C. less capital and the same labour.
D. more capital and more labour.
OE. more capital and less labour.
C
A
B
Q =4000
Q = 2000
C
Isocost line
QL
PL
Suppose the price ratio
is the same along isocost
PK
lines A and B. In the figure at right, the difference between
isocost line A and isocost line B is that
A. the total cost is larger along B.
B. the total cost is larger along A.
OC. labour is relatively more expensive along A.
○ D. the level of output is lower along A.
OE. both capital and labour are relatively cheaper
along A.
Capital
B
Labour
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