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Econ 4010 Lecture 20

# Econ 4010 Lecture 20 - i What level of output will the firm...

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<Lecture 20> Review: Study Questions ** Suppose that a firm's production function is Q = 4L 0.25 K 0.25 . a. Find the marginal products of labor and capital. b. Does this production function show diminishing returns to labor? Explain. c. Does this production function exhibit increasing, constant, or decreasing returns to scale? Explain. d. Find the marginal rate of technical substitution of labor for capital (MRTS LK ). ** The cost of a unit of capital is \$2 and the cost of a unit of labor is \$32. e. What is the firm's costs function? f. Find the optimal capital-labor ratio to minimize the total cost. g. Find the cost function in terms of Q. h. Find the average cost and marginal cost in terms of Q. ** Assume that the market price of the firm's product is \$20.
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Unformatted text preview: i. What level of output will the firm produce to maximize profit? j. What is the minimum cost? k. What is the level of profits? ** Assume that the market price of the firm's product is changed to \$40. l. What level of output will the firm produce to maximize profit? m. What is the minimum cost? n. What is the level of profit? ** The price is now \$40. If the firm implements the profit sharing plan, the total cost is C = Q 2 / 2. o. What level of output will the firm produce to maximize profit under the profit sharing plan? p. What is the minimum cost? q. What is the level of profits? r. If the profit sharing plan entitles employees to 25% of the profit, Should the firm institute the plan? Explain. 1...
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