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Unformatted text preview: 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 f 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 f rm has no labor or other costs? More generally, how does cost vary with volume? 3. The production process of the f 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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This note was uploaded on 07/16/2009 for the course EC 201 taught by Professor Idson during the Fall '08 term at BU.
- Fall '08