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Econ 100B: Tang
Spring Quarter 2008
Homework 3: Ch 8 and Ch 9
Due Thursday May 8, at the beginning of class.
Please write your name and PID on your homework.
1)
Suppose the competitive market price for lunchboxes is $11/unit.
Short run
total costs for lunchboxes have been found to be:
C
=
9
+
3
Q
+
Q
2
a) How many lunchboxes will this firm make?
b) Does the secondorder condition for this problem hold?
c) At what price does profit maximizing supply fall to 0 (what’s the shutdown
point)?
d) What’s the profit at the optimal point?
e) Graph profitmaximizing supply as a function of the market price
P
.
2)
A firm’s shortrun production function is given by:
Q
=
KL
where the level of capital is fixed at
K
Define the wage as the constant
w
, and the rental price of capital to be
r
.
The
competitive price of output is
P
.
a) What is the firm’s short run marginal cost?
b) At what levels of
P
(with respect to the other variables) will the firm want to
shut down?
c) What is the firm’s profit maximizing supply as a function of
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 Winter '07
 RAUCH
 Microeconomics

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