When a Production Function Can Be Expressed As $Q = \min \{ a K , B L \}$

question 13

Multiple Choice

When a production function can be expressed as $Q = \min \{ a K , B L \}$ , the relationship between capital and labor in the production function is that

• A) capital and labor are perfect substitutes, and the isoquants are linear.
• B) capital and labor must be combined in fixed proportions, and the isoquants are L-shaped.
• C) capital and labor are easily substituted, and the isoquants are convex to the origin.
• D) capital and labor are perfect substitutes, and the isoquants are L-shaped.

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Definitions:

Premiums

Regular payments made to an insurance company in exchange for coverage, or the additional cost paid for products or services perceived as offering greater value.

Adverse Selection

A scenario in economics where buyers and sellers have access to different information, leading to transactions where the seller is likely to sell goods of lower quality.

Moral Hazard

The risk that a party insulated from risk may behave differently than if they were fully exposed to the risk.

Market Efficiency

Market efficiency refers to the extent to which market prices reflect all available, relevant information, making it impossible to consistently achieve higher returns on investment without taking additional risk.