h6 - The Colorado College Department of Economics and...

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1 The Colorado College Department of Economics and Business Block 7 Econ 207 HW 6. 1. A widget manufacturer has the production function of the following form: q =2 K + L where the two inputs are perfect substitutes of each other. (a) What is the RTS along these isoquants? Graph the isoquant for q=20, q=40 and q=60. (b) If the wage rate (w) is $1 and the rental rate on capital (v) is $1, what cost-minimizing combination of K, L will the manufacturer employ for the different production levels in part a? What is the manufacturer’s expansion path? (c) How would answer in (b) change if v rose to $3 with w remaining at $1? (3+4+3 = 10 points) 2. Professor Smith and Professor Jones are going to produce a new economics textbook. As true economists, they have laid out the production function for the book as J S q . = where q = the number of pages in the finished books; S = the number of working hours spent by Smith; J = number of working hours spent by Jones. Smith, values her labor at $40 per working hour. She has spent 900 hours preparing for
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