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problemset4[1]

problemset4[1] - EC201 Fall 2007 Prof Jordi Jaumandreu...

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EC201, Fall 2007, Prof. Jordi Jaumandreu Problem set #4 Costs 1. The only variable input a janitorial service uses to clean o ces is workers who are paid a wage, w, of $8 an hour. Each worker can clean four o ces in an hour. Determine the average variable cost and the marginal cost of cleaning one more o ce. Draw diagrams of the total cost, average variable cost and marginal cost curves showing their relationships. How these curves will change with a lup-sum franchise tax of $30 ? 2. A fi rm builds shipping crates out of wood. How does the cost of producing a 1-cubic-foot crate (each side is 1 foot square) compare to the cost of building a 8-cubic-foot crate if wood costs $1 a square foot and the fi rm has no labor or other costs? More generally, how does cost vary with volume? 3. The production process of the fi rm you manage uses labor and capital services. How does the long-run expansion path change when the wage increases while the rental value of capital stays constant?
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