Econ501aH3S07

# Econ501aH3S07 - rm has the production function of problem 1...

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The Ohio State University Department of Economics Econ 501.02 Prof. James Peck Homework #3 (due Wednesday May 9) 1. Consider the following production function x = 5 KL K + L . (a) Find an expression for the marginal rate of technical substitution. (b) Find expressions for the average and marginal products of labor. (c) Does this production function exhibit decreasing, constant, or increasing returns to scale? 2. Suppose the fi rm has the production function of problem 1, x = 5 KL K + L , and that input prices are given by w = 4 and r = 1 . (a) Find the conditional demands for K and L, as a function of x. (b) What is the fi rm’s long run average cost function? 3. Suppose the fi rm has the production function of problem 1,
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Unformatted text preview: rm has the production function of problem 1, x = 5 KL K + L , and that input prices are given by w = 4 and r = 1 . Also suppose capital is f xed at 4 units, K = 4 . (a) Compute the f rm’s short run average total cost, average variable cost, and marginal cost functions. (b) (This is challenging. Don’t spend too much time on this.) First f nd the value for x that minimizes short run average total cost. Now substitute that value of x into the following functions, and show that they take on the same value: short run average total cost, short run marginal cost, and long run average total cost. 1...
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