# aps5 - 11 6 10 q=2 gallon 12 2/4 \$/unit SRMC SRAVC p^...

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Problem Set #5 Solution Q1. Solution: Labor-tutors =100, Capital-computers =150 l P k P 3 / 2 150 100 = = = r w P P k l a. =10, k MPP 5 = l MPP r w MPP MPP k l < = = 2 1 10 5 ===> r MPP w MPP k l < Combination A is not efficient, should substitute away from labor (tutors) for more capital (computers). b. =6, k MPP 9 = l MPP r w MPP MPP k l > = = 2 3 6 9 ===> r MPP w MPP k l > Combination B is not efficient, should use more labor (tutors) and less capital (computers). c. =9, k MPP 6 = l MPP r w MPP MPP k l = = = 3 2 9 6 ===> r MPP w MPP k l = Combination c is efficient, or cost minimizing to produce 100 lessons. Q2. Solution: b. For 1 pound chicken salad, Total expenditure = 0.2*6+0.1*10 = 2.2 Horizontal intercept = 2.2/0.2 = 11 Vertical intercept = 2.2/0.1 =22 Slope= -2 1/4

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Vegetable (ounce) 22 20 q=1gallon Q3 Solution: short- run variable cost function: VC = q 3 10q 2 + 100q a. SRAVC = VC/q = q 2 - 10q+100 100 20 3 2 + = = q q dq dSRVC SRMC b. 0 10 2 = = q dq dSRAVC ===> =10/2 = 5 min SRAVC q 0 20 6 = = q dq dSRMC ===> = 20/6 =3.33 min SRMC q ===> > min SRAVC q min SRMC q c. Chicke n Slope= -2

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Unformatted text preview: 11 6 10 q=2 gallon 12 2/4 \$/unit SRMC SRAVC p^ Profits P=MR p* q^ 5 3.33 output d. At any price lower than p*, firm shuts down. At p^ (any price higher than p*), firm earns profits given as shaded area. Q4. Solution: 30 units of Labor and 20 units of capital - cost minimizing input bundle to produce X 1 unit of output W= = \$40 r= =\$30 l P k P a. cost of \$1800 – x intercept: \$1800/\$40 = 45 y intercept: \$1800/\$30 = 60 b. for bundle A (30,20) slope of isoquant at A is equal to the slope of the isocost line, which is –w/r = -40/30 = -4/3 3/4 K 60 c. shown in the above, from A to A2, factor substitution effect = X2-X0 d. shown in the above (this is the situation that total cost of production is lower than before after the wage decrease), from A2 to A1, output effect = X1-X2 45 60 X0=30 X2 A A2 A1 20 x1 x2 X1 L 4/4...
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aps5 - 11 6 10 q=2 gallon 12 2/4 \$/unit SRMC SRAVC p^...

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