Intermediate Microeconomics: A Modern Approach, Seventh Edition

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ECONOMICS 300 QUIZ 6 SPRING 2005 PLEDGE:____________________________ NAME:______________________________ This is a take home quiz. It is due at the beginning of class on Wednesday, April 20. You may consult your notes and the book, but you may not consult any other source, be it your roommate, classmate, parent, websites, etc. 1. (5) Suppose a firm is operating in the short-run, and the only input that it can alter is the amount of labor it hires. If the value of the marginal product of an extra unit of labor is determined by the following equation VMP = 10L -1/2 , and the wage is $2, how much labor should the firm hire to maximize its profits? Explain.
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Unformatted text preview: 2. (5) A firm uses two inputs (L and K) to produce output (Q). The production function is Q = L 1/3 K 2/3 . If w l = 2 and w k = 1, then how much will it cost for the firm to produce 20 units of output? 3. (5) A firm’s total cost (as a function of output) can be described with the following equation. TC(Q) = (Q + 2) 2 . Write down an equation for the firm’s: a. Marginal Cost. b. Fixed Cost. c. Variable Cost. d. Average Fixed Cost. 4. (5) True or False. When the marginal cost is increasing, the average variable cost is always increasing. Explain your logic....
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