# Problem Set #5 answer - 49(b(c The short-run supply curve...

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Econ 101 ANSWERS TO PROBLEM SET 5 Professor Wissink Cornell University 1.(a) (b) 2. A necessary condition for cost-minimization is mp K /p K = mp L /p L . In this case mp K /p K = 4.5 and mp L /p L = 7. The firm gets more output from the last dollar it spends on labor than from the last dollar it spends on capital. Therefore, the firm should buy less capital and more labor . 3. LABOR INPUT OUTPUT AVERAGE MARGINAL (units/week) (units/week) PRODUCT PRODUCT 0 0 - - 1 7 7 7 2 14.5 7.25 7.5 3 22 7.33 7.5 4 29 7.25 7 5 35 7 6 6 39 6.5 4 7 39 5.57 0 8 34 4.25 -5

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APS5 2 (c) mp L passes through ap L at the maximum of the ap L curve. (d) Diminishing marginal productivity "sets-in" after L = 3. 4.(a) x fc vc tc afc avc atc mc 0 50 (0) (50) 4 - 4 - 1 50 10 60 50 (10) 60 10 2 50 18 (68) 25 9 (34) 8 3 50 (28) 78 16.67 9.33 26 10 4 50 42 (92) 12.5 10.5 23 (14) 5 50 60 110 10 (12) 22 18 6 50 84 134 8.33 14 22.33 (24) 7 50 119 (169) 7.14 17 24.14 35 8 50 (168) 218 6.25 (21) 27.25
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Unformatted text preview: 49 (b) (c) The short-run supply curve for the firm is the part of the srmc curve above the sravc curve. If p < minimum sravc, zero output is supplied. APS5 3 (d) From the supply curve, we see that 6,000 should be supplied. At this level tr = 6 × \$30 = \$180 and tc are \$134 (from table) so profit is \$46. (e) If price were about \$22 per thousand, the firm would set the output at about 5,000 and tr = tc (price is at mc = atc). (f) In the short run the firm will produce 4,000 at price \$16, losses are tc- tr = \$92 - \$16 × 4 = \$28. Observe that this is still smaller than shut-down losses, \$50. In the long run the firm can avoid losses by not producing anything. 5.(a) See below. (b) Choose Plant B since costs will be smallest to produce 120 units with Plant B. (600 < 720 < 840). (c) To produce 80 units with Plant B it costs 560. However if Plant A had been built it would only cost 400....
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