Ans_Quiz3

# Ans_Quiz3 - Q = 25KL = 25 L Lw/r = 25L 2 w/r => L =...

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Answer to Quiz 3 Suppose that a firm’s production function is Q = 25KL, wage = w, rental rate of capital = r. 1. What is the labor demand function? 2. If Q = 100, how many labor would be employed? 3. Find out the total cost function. 1. Cost minimizing condition: MP L / MP K = w / r, That is 25L/25K = w/r, that is , Kr = Lw
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Unformatted text preview: Q = 25KL = 25 L Lw/r = 25L 2 w/r => L = (Qr/25w) 1/2 2. Q = 100 => L = (100r/25w) 1/2 = 2(r/w) 1/2 3. Cost minimizing amount of labor is (Qr/25w) 1/2 and that of capital is (Qw/25r) 1/2+ Total cost function TC = wL + rK = w(Qr/25w) 1/2 +r (Qw/25r) 1/2 = 0.4 ( Qrw) 1/2...
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## This note was uploaded on 01/30/2011 for the course 730 368 taught by Professor Bryant during the Spring '08 term at Rutgers.

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