323
Mayer
Homework Econ #2
Due October 20th 2008
You can discuss the problems in groups, but you have to write up the answers individually.
Multiple choice (1 point each)
1)
Suppose there are 100 identical firms in the rag industry, and each firm is willing to supply 10 rags at any price. The market supply curve will be a(n) (a) vertical line where Q = 10. (b) vertical line where Q = 100. (c) vertical line where Q = 1000. (d) upward sloping line.
2)
A change in relative factor prices will always result in (a) a change in the slope of the isoquants. (b) a tangency between the new isocost line and a new isoquant. (c) a rotation of the isocost lines. (d) all of the above.
3)
If a profit-maximizing firm finds that, at its current level of production, MR > MC, it will (a) earn greater profits than if MR = MC. (b) increase output. (c) decrease output. (d) shut down.
4)
In the long run, profits will equal zero in a competitive market because of (a) constant returns to scale. (b) identical products being produced by all firms. (c) the availability of information. (d) free entry and exit.
5)
Assume baseball player salaries are fully determined before the season starts. From the point of view of the baseball team owner, during the course of the season player salaries are then (a) variable costs. (b) marginal costs. (c) fixed costs. (d) average cost
Open answer
6) (8 points) The Sharperframe Co. frames pictures. Its production function is given by: Number of framed pictures = q = 10 K .5 L.25 . Where K captures capital inputs and L for stands labor. The price of one unit of labor is w = $10 the price of one unit of capital is r = $5 . (a) Calculate the marginal product of labor and the marginal product of capital. (b) Find the ratio between capital and labor that minimizes cost. (c) Calculate the cost of producing 10 picture frames (d) Calculate the marginal cost of producing one more picture frame.
7)
(2 points) Suppose a firm has the following total cost function TC = 100 + 2q2. If price equals $20 (or $30), what is the firm's output decision? What are its short-run profits?
8)
(4 points) The HELMCAMP & EASTERWOOD BICYCLE corporation (HEB co) produces bicycles. It uses labor and capital as inputs. The two inputs are imperfect substitutes and flexible in the long run. The bicycle industry is perfectly competitive. A new law introduces mandatory health insurance. It is financed by a 2$ tax on every hour worked, to be paid by the employer. Show h...