Econ 100A - Worksheet #12Cost Minimization and The Competitive Supply FunctionExercise 1 (Long Run Avoidable Fixed Cost)Consider a firm’s long run production function for a goodQto be produced with capitalKand hours of laborL. The productionfunction is the following:F(K, L) =0ifK <1(K-1)13L23otherwise.1)Compute the conditional input demands and the cost function associated with this technology to produce a quantityq >0when the user cost of capital isrand the hourly wage isw.2)Compute the conditional input demands and the cost function associated with this technology to produce a quantityq= 0when the user cost of capital isrand the hourly wage isw.3)Does this firm have (sunk) fixed costs as defined in the lecture?4)Why can we say that this firm has avoidable fixed costs (sometimes referred to as quasi-fixed costs).Exercise 2John Locke’s Box Company produces high technology hyper-resistant boxes that are sold in bundles of 1000 boxes. The marketis highly competitive, with boxes currently selling for $100 per bundle.
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