ECON201Answerstohourexam2

ECON201Answerstohourexam2 - W ELLESLEY COLLEGE DEPARTMENT...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
WELLESLEY COLLEGE DEPARTMENT OF ECONOMICS ECONOMICS 201-03 JOHNSON Answers to Hour Examination #2 I. Multiple Choice (2 points each - 30 points possible) 1. A 9. B 2. A 10. A 3. A 11. A 4. A 12. A 5. B 13. C 6. C 14. C 7. A 15. C 8. C II. Questions & Problems (40 minutes total - 60 total possible points) A. "Less Shampoo, More Conditioner" (25 minutes - 38 points) a. This firm's production function exhibits DECREASING returns to scale. Why? Well, doubling, say, Land K results in a scaling up ofoutput by a factor of 21/2 which we know is LESS than 2. Thus, doubling all inputs results in a LESS THAN DOUBLING ofoutput ....therefore, DRS. b. To find the profit maximizing demands for L and K, set up the profit function in terms ofonly L and K and then solve the appropriate first order conditions to maximize profit. Some ofyou just set the value ofthe marginal product equal to the input price for both Land K, and that's fine. You should, however, confirm to yourselves that the first-order conditions below are equivalent to that approach (indeed, that's HOW you derive those conditions!): If " 11'.- T ( " ? ~ - IN L- '('f.,-= -1' [C"- + K'>.J-w L- y ¥- ~" -3. n:'h - w = ~ -? l'll(wl'r1f')" lIS' = ~ I -'I ~ \<. Z- _ '\ ::: ~ ~) -rJ-\ - \6 \.?- '\ ) e.rt ~ -
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
S~I ~nL~~~~~~ l\\-"",~ ~~~ct--,.~~~ L ~ ~ ~~~~""'~ ~ ~ 1> \ \~~"" b~ \"'~~ V''' 0 . .. ~ t. 1\,t-.\ 'fu"'~ ~\t-'l'i"S +-\''L S .E- - ~ O.k.- ~\s '-.\l-. .SS\ "" IV) ~ \1\,"'\:" l ~) 'b t ~()\fol .' r c. For the profit maximizing supply function, simply plug your L* and K* expressions from (a) into the production function to arrive at the firm's supply function as a function of P, W, and r : ,I \, \-; L"2.-+ ~ L..-::: (~01L t l ~)\7- - _--e::::::=::::::----
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 6

ECON201Answerstohourexam2 - W ELLESLEY COLLEGE DEPARTMENT...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online