SectionWS12

SectionWS12 - Econ 100A Worksheet#12 Cost Minimization and...

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Unformatted text preview: Econ 100A - Worksheet #12 Cost Minimization and The Competitive Supply Function Exercise 1 (Long Run Avoidable Fixed Cost) Consider a firm’s long run production function for a good Q to be produced with capital K and hours of labor L . The production function is the following: F ( K,L ) = if K < 1 ( K- 1) 1 3 L 2 3 otherwise. 1) Compute the conditional input demands and the cost function associated with this technology to produce a quantity q > when the user cost of capital is r and the hourly wage is w . 2) Compute the conditional input demands and the cost function associated with this technology to produce a quantity q = 0 when the user cost of capital is r and the hourly wage is w . 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 2 John Locke’s Box Company produces high technology hyper-resistant boxes that are sold in bundles of 1000 boxes. The marketJohn Locke’s Box Company produces high technology hyper-resistant boxes that are sold in bundles of 1000 boxes....
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This note was uploaded on 07/09/2010 for the course ECON 100A taught by Professor Woroch during the Fall '08 term at Berkeley.

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