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hw304 - Econ 100A HW 3 Production Cost Competition Spring...

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Econ 100A Spring 2004 HW 3: Production, Cost, Competition 1. A badminton set includes two rackets and one net. What is the long-run expansion path for a firm that assembles such sets (and no additional cost), if the firm buys rackets and nets at market prices? How does the expansion path depend on the relative prices of rackets and nets? 2. A bottling company uses two inputs to produce bottles of the soft drink Squish: bottling machines ( K ) and workers ( L ). The machine costs $1,000 per day to run; and the workers earn $200 per day. At the current level of production, the marginal product of the machine is an additional 200 bottles per day, and the marginal product of labor is 50 more bottles per day. Is this firm producing at minimum cost? If it is minimizing costs, explain why. If it isn’t minimizing costs, explain how the firm should change the ratio of inputs it uses to lower its cost. (Be sure to discuss the conditions for minimizing cost.) 3. What is the long-run cost function for a production function where L and K
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