1. Suppose output is produced according to the production function QK =min( K , 2 L ), what is the expansion path of this production function? K=2L 2. Suppose a firm’s average cost curve is described by the equation AC = 2 q 2 -16 q + 90. At what output level does the marginal cost curve cross the average cost curve? Q*=4 3. If input prices are w= 4, and r = 1, and q =4 K 0.5 L 0.5 , what is the least cost input combination required to produce 40 units of output? L*=5, K*=20 4. Suppose a perfectly competitive firm has the short-run cost function C= 125 + q 2 . Determine the firm’s output level and profit at prices of $30 and $20. At what price does the firm reach the shut-down point? when P=30, Q*=15, profit=100 , when P=20, Q*=15, profit=-25 operate at all positive prices P=0 (shutdown when P<min(AVC), that happens when MC=AVC, in this case, when 2Q=Q or Q=0, AVC(0)=0) 5. Demand in Market 1 for X is Q d =80 - p . Demand in Market 2 is Q d =120- 2 p . At a price of $20, which has a larger consumer surplus? Market 1 (180 > 160)
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