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ec151a_wnter2010_ps4 - Problem Set 4 Economics 151a Winter...

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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) = L 2 .0015L 3 + K. a. What is the firm’s marginal product of labor (MP L )? b. Over what range of L is the MP L increasing? 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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