Econ301_hw4 - Econ 301 Homework#4 Due on Friday 1 Cost A...

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Econ 301 - Homework #4 Due on Friday July 16, 2010 1. Cost . A U.S. electronics firm is considering moving its production to a plant in Asia. Its production function is q = L 1 / 2 K 1 / 2 . In the U.S., w = 10 = r . At its Asian plant, the firm will pay a 10% lower wage and a 10% higher cost of capital: w * = 10 / 1 . 1 and r * = 1 . 1 × 10 = 11. a. What are L and K, and what is the cost of producing q = 100 units in both countries? b. What would the cost of production be in Asia if the firm had to use the same factor quantities as in the U.S.? c. Optional (5 extra points). How can you explain why some U.S. firms move their plants in the Asian countries? 2. Profit Maximization for Competitive Firms . Suppose that a competitive firm has a cost function C ( q ) = 100 + 50 q - 30 q 2 + 5 q 3 and the market price is p = $50. a. What is the firm ’s fixed cost? b. What is the firm’s marginal cost function? c. What is the firm’s average cost function? d. What is the firm’s average variable cost function? e. Solve for the profit maximizing level of output for this firm.
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