# Exam2 - additional 200 bottles per day, and the marginal...

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Exam #2 April 1 st , 2009 Name___________________________ 1. A firm has one plant with the following cost function: 3 2 1 4 10 q q q C + - = a. What is the marginal cost for this firm? b. What are the total fixed costs for this firm? c. What are the total variable costs for this firm? d. At what level does this plant reach the minimum efficient scale? 1

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2. In the short run, a firm cannot vary its capital, K=2, but can vary its labor, L. It produces output q. Explain why the firm will or will not experience diminishing marginal returns to labor in the short run if its production function is: a. Firm 1: 2 / 1 2 / 1 K L q = b. Firm 2: K L q + = 10 c. Do either of these firms exhibit increasing returns to scale? Why? 2
3. A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual smooth shape. The machine costs \$1,000 per day to run, the workers earn \$200 per day. At the current level of production, the marginal product of the machine is an

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Unformatted text preview: additional 200 bottles per day, and the marginal product of labor is 50 bottles per day. a. Is this firm producing at minimum cost? b. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost. c. DRAW this scenario using isoquant and isocost curves. 3 4. A gasoline company is a price taker in a perfectly competitive market. Currently the market price of gas is \$3 a gallon. This particular firm has three choices about how much to produce. See the table below. a. If the firm is profit maximizing how many gallons of gas should they produce? b. What is the profit at this level? c. Should the firm shut down? Why or why not? d. What will happen in the long run given your answer to B? Gallons of gas Total Cost Variable Cost 1 9 6 2 12 9 3 16 13 4...
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## This note was uploaded on 02/07/2011 for the course AEC 303 taught by Professor Staff during the Fall '08 term at Kentucky.

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Exam2 - additional 200 bottles per day, and the marginal...

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