HW08-REV-solutions

HW08-REV-solutions - Economics 11 Solutions to HW8 1a) Cost...

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Economics 11 Solutions to HW8 1a) Cost to produce 1 glass of grape juice Production function: J min L , G Therefore, J L G . Cost function: C J p L L p G G J .2 1.5 1.7 J The cost of producing 1 glass of grape juice is 1.7 b) The cost of producting J glasses of grape juice is 1.7 J c) One employee works 8 hours per day. L 8 60 480 Since J L , J 480. d) Price of grape juice is $1 per glass. J J 1.7 J .7 J The company won’t produce any grape juice at these prices since they are losing money if they do so. e) Price of grape juice is $2.50 per glass. J 2.5 J 1.7 J .8 J To maximize profits they should produce at their total capacity. Therefore J 480.
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2. Minimize p L L p K K subject to M 500 K 1 2 L 1 2 p M 400 p L 100 Set MRTS p L p K 250 K 1 2 L 1 2 250 K 1 2 L 1 2 100 400 K L 1 4 or K L 4 Substitute into production function to solve for L as a function of M . M
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This note was uploaded on 04/01/2010 for the course ECON Econ 11 taught by Professor Mcdevitt during the Fall '07 term at UCLA.

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HW08-REV-solutions - Economics 11 Solutions to HW8 1a) Cost...

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