PS2 - FIN 501 Problem Set#2 Due Tuesday In these problems...

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FIN 501 Problem Set #2 Due Tuesday, September 14, 2010 In these problems it is permissible (although not necessary) for the answers to be fractional numbers. For all problems show your work. Please include the names of your group members on your write-up. 1. Your firm faces a production function that is Q(K,L) = K 0.5 L 0.5 . Let w, the hourly wage rate of labor, be = \$2. Let v, the hourly rental rate of capital, be = \$8. a. Solve for the firm's demand for K and L as a function of Q. b. Based on your answer to (a), if you decide that you want to produce Q=40 units, how many units of K and L will you use to minimize costs? Explain how you found the answer. c. What is the total cost of producing Q = 40 units? d. When you are producing Q = 40 units, what is the marginal product of capital? What is the marginal product of labor? e. Starting at Q = 40, what is the marginal cost of producing another unit of Q? What is the marginal cost of producing a “little bit” more Q (e.g., the calculus answer)?

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This note was uploaded on 01/18/2011 for the course FIN fin580 taught by Professor Miller during the Spring '10 term at University of Illinois, Urbana Champaign.

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PS2 - FIN 501 Problem Set#2 Due Tuesday In these problems...

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