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Unformatted text preview: Economics 101 Problem Set 6 Due Tuesday, March 15, 2011 George J. Mailath Please indicate your recitation time/number and recitation instructor on your answer. 1. Mugga is a perfectly competitive mug manufacturing company. Its production function for mugs is f ( k, ) = 4 k 1 / 3 1 / 3 . Suppose the price of capital is r and the wage rate is w . (Note that output may not be an integer.) (a) Derive Muggas cost function and contingent input demand func- tions. (b) How much would it cost Mugga to produce 9 units, when w = 1 and r = 4? (c) For the same input prices, how many mugs would Mugga produce if the price of a mug is 6? How much capital and labor will Mugga demand? Suppose now Muggas capital is fixed at k = 27, but Mugga can still vary its labor input. (This can be thought of as a short-run situation.) (d) Derive Muggas cost function and contingent labor demand func- tion. (e) How much would it cost Mugga to produce 9 units, when w = 1 and r = 4?...
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