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Unformatted text preview: Cornell University Economics 3130 Problem Set 7 Solutions 1. True/False/Explain. State whether each of the following is true or false, and explain why. Please limit your answers to no more than two sentences. All credit is based on the explanation. (a) A firm’s exit price and shut down price can be found by minimizing its short-run and long-run average costs, respectively. False. The definitions are reversed. 2. (PS 6 Q 1 cont.) In a previous problem you solved for the “short-run” supply curve of a firm. We had not yet dealt with the issue of the relationship between the average and marginal costs of the firm so we did not address whether the firm would actually produce over the entirety of the function that was solved for. We will continue to assume that your production function is f ( l,k ) = l 1 3 k 1 3 , the price of labor is w and the price of capital is r . (a) Suppose that the firm believes that the following prices will hold for the long-run: w = r = 1 and p = 3. What levels of= 3....
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