ps4_s04 - Firm 1 and Firm 2 use the same type of production...

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1. Fred and Ted both make stop-watches with Labor (L) and Kapital (K). Suppose that Fred and Ted have the following production functions: x Fred = (KL) 1/2 x Ted = (KL) 2 Fred and Ted both buy inputs in the same input market where w = the price of Labor and r = the price of Kapital. Ima Smart insists that since these two production functions are merely monotonic transformations of each other, Fred and Ted have the same technologies and will end up with same set of cost curves. Do you agree or disagree. Explain/Defend your position. 2.
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Unformatted text preview: Firm 1 and Firm 2 use the same type of production function, but Firm 1 is only 90% as productive as Firm 2. That is, the production function of Firm 2 is x 2 = f(K, L) and the production function of Firm 1 is x 1 = 0.9f(K, L). At a particular level of inputs, how does the marginal product of labor differ between the firms? Econ 313 - Spring 2004 PS#4-XtraQ DUE at the start of class on Monday 3/15 No need to hand in the workbook answers, too. But DO the workbook questions even if it is not DUE or you will be doomed!...
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