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Unformatted text preview: Economics 302 Silve Parviainen Intermediate Microeconomics Spring 2007 Mock Midterm II 1 Production Technology and Cost Curves A firm purchases labor ( l ) and capital ( k ) at fixed input prices w = 10 and r = 5, respectively. With the firms current input mix, the marginal product of labor is MP l = 10, and the marginal product of capital is MP k = 10. Assume, that the firm currently uses both inputs, and its production technology results to smooth well-behaving isoquants. (a) Could this firm be in a long-run cost-minimizing equilibrium? If not, explain what should be done in order to reach the long-run cost-minimizing input combination. (b) Could this firm be in a short-run cost-minimizing equilibrium? If not, what should it do? (c) Assuming that capital is fixed in the short-run, k = k , consider the effects of an increase in the price of capital from 5 to 10. What happens to the SMC curve? What happens to SAC and AC curves?...
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