h4s11 (2)

# h4s11 (2) - explain whether the factor substitution effect...

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ECO 304K INTRO MICRO SPRING 2010 Hickenbottom HOMEWORK #4 (Due April 8 th ) 1. Consider a firm with the following production schedule. Assume the firm can only produce whole quantities (i.e., Q=3.5 not possible) Q TC 0 36 1 39 2 41 3 46 4 54 5 65 6 78 7 98 Find the long run equilibrium firm quantity and price. (1 point) 2. For the production schedule of a perfectly competitive firm given below, answer the following: Units of Labor Total Output Units of Labor Total Output 1 7 4 19 2 12 5 21 3 16 6 22 a) If the price of output is \$50 per unit, find the specific values for the Marginal Revenue Product and the quantity of labor the firm hires if the market wage is \$75 (1 point) b) If the price of output changes to \$30, explain how this changes the results in (a) (1 point) c) Explain how it is possible for the changes in (b) to result in lower market wages. (1 point) d) If an increase in the price of capital causes the firm to hire less labor,

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Unformatted text preview: explain whether the factor substitution effect or the output effect is larger. (1 point) 3. A firm has the choice of the following investments Investment A: costs \$5000 today, pays a total of \$4000 next year and \$1700 the second year. No value beyond that. Investment B: costs \$10000 today, pays \$2000 next year and \$9800 the second year. No value beyond that a) Show which, if any, investments the firm will make if the interest rate is 10%. (1 point) b) Show which, if any, investments the firm will make if the interest rate is 5%. (1 point) c) Someone claims that the rate of return of project B is 9%. Explain whether or not you can refute this claim base only on the data from parts (a) and (b). Then set up (but do not solve) and equation that you give us an exact answer for the rate of return of the project. (2 points)...
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## This note was uploaded on 04/10/2011 for the course ECO 304K taught by Professor Hickenbottom during the Spring '10 term at University of Texas.

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h4s11 (2) - explain whether the factor substitution effect...

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