Cobb-Douglas production can be estimated by regression analysis by first converting it into the following log form. B) the demand for diamonds is so high. C. human desires for the good exceed the amounts available at a zero money price. Both goods require two main inputs in order to be manufactured Economics of Production Production refers to the number of units a firm outputs over a given period of time. D. all goods are free. C) De Beers limits the quantity of diamonds supplied to the market. Diamond rings are relatively scarce because: A) according to geologists, diamonds are less common than any other gem-quality colored stone. scarce input in a setting where suppliers of di⁄erentiated products engage in price competi-tion after acquiring the input at auction. log Q = log A + a log L + b log K Lesson 1: Because resources are scarce, not everyone's wants can be met. ... C. the amount of an input that must be used in order to produce one more unit of a good. This situation illustrates our first lesson. So, despite wanting more production, Econ Isle has settled at 4 widgets and 4 gadgets. a) The outputs generated by the production process transforming land, labor, and capital into goods and services b) Restricted to the land resources such as natural resources that are unimproved by human economic activity c) Land (natural resources), labor (human capital, entrepreneurship), and capital (constructed inputs such as factories). D. it is an abundant natural resource. C. opportunity costs are zero when the production of bread increases. In this example, the limited input is labor. production inefficiencies as production becomes asymmetric. The production function is a statement of the relationship between a firm’s scarce resources (i.e. A supplier values the input both because it enables the supplier to enhance the quality of its products and reduce its production cost and be-cause, once acquired, the input is unavailable to rivals. D) of monopolistic competition. The people of Econ Isle would like to increase the production of both widgets and gadgets, but the PPF shows that this is not possible. Scarce Goods and Services ... A PPF is a graph showing the possible production combinations of two goods given limited inputs. the allocation of scarce inputs.3 The typical prescription has been that the old “beauty contests” (in the case of spectrum) or rigid structures of bilateral contracts and vertical integration (in the case of electricity and gas) should be replaced by centralized auction markets to place the input The Cobb-Douglas production function of the previous sub-section implies that the production elasticities of each of the inputs are constants, i.e. Roughly speaking, Cobb-Douglas production function found that about 75% of the increase in manufacturing production was due to the labour input and the remaining 25% was due to the capital input. no matter how scarce or abundant an input is, a 1% increase has always the same proportionate effect on output, because the elasticity of substitution is one. 48. 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