Problem Set 4 Economics 151a Winter 2010 Due Tuesday, February 2, 2010, 12:10 pm 1.A firm produces output using labor and capital, but capital must be held fixed in the short-run. Their production function is given by F(L,K) = L2–.0015L3 + K. a.What is the firm’s marginal product of labor(MPL)? b.Over what range of L is the MPLincreasing? Over what range is it decreasing? c.What is the firm’s average product of labor?d.If this firm is currently employing 380 workers and its output sells at a price of $2, what must be the market wage rate for their workers? 2.The Acme bag company manufactures and sells bags using paper and labor. Currently workers are paid $6 per hour and paper costs $20 per ton. Acme’s current total costs of production are $200,000 per day. a.Write and equation for, and illustrate on a graph the isocost line for Acme. Label each intercept and note the slope of the isocost line. b.If Acme has isoquants that are well-behaved, or convex to the origin, illustrate their likely response to an increase in the price of labor (the wage).
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