Week_13_solutions

Week_13_solutions - 1 WEEK 13 - SOLUTIONS TUTORIAL...

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1 WEEK 13 - SOLUTIONS TUTORIAL QUESTIONS 1. HPW 17.7, Problem 35, p.777 Answer: Profit=Total Revenue – Total Cost 2. HPW 17.8, Problem 5, p.784 Answer:
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2 3. Consider a problem very much related to the output-maximizing manager discussed in the lecture. Again, production requires capital (K) and labour (L). The output level is given by the following function. As before, capital costs r per unit, and labour costs w per unit, implying that total expenditure on inputs is: As a manager, you are told to produce an output of . Your problem is to choose K and L so as to produce this output at the lowest possible cost. Answer: (a) The problem is to minimize subject to . The Lagrangian is: Answer: (b) The first order conditions are: This is NOT a linear system. Answer: (c) Solving these in a way similar to that discussed in the lecture gives This makes sense – as r increases, more labour is used and as w increases more capital is used. As increases, both labour and capital are increased. Answer:
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Week_13_solutions - 1 WEEK 13 - SOLUTIONS TUTORIAL...

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