Intermediate Microeconomics
Professor Ranganath Murthy
Bucknell University, Summer 2005
PROBLEM SET 4
Due June 29, 2005
(1)
Please use the graph provided.
Your graphs should be accurate
.
(1) The “price of labor” (
w
) is $2 and the “price of capital” (
r
) is also $2.
Draw the
isocost lines
for
the following levels of costs: $20, $40, $60, $80, and $100.
(2) What combination of
K
and
L
should the producer use to minimize the total cost of producing:
10 units of output? ______________________________________________.
20 units of output? ______________________________________________.
(3) Draw the
expansion path
.
(4) Characterize the
returns to scale
.
That is, are returns to scale
increasing
,
decreasing
, or
constant
?
State the reason for your answer
.
( Hint
: Look at your answers to part (2). )
(5) Complete the following table:
Output
Total Cost
Average Total Cost
10
20
(6) Will Marginal cost be
above, below, or the same
as Average Total Cost?
Without actually
computing the marginal cost
, state the reason for your answer
.
1
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 Summer '05
 ??
 Microeconomics, average total cost, average variable cost, Marginal Products

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