Homework #2

# Homework #2 - hand. In this situation, how many labor has...

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Homework #2 Suppose that a firm’s production function is given by  Q = K 2 L .  Further suppose that   w = \$10  and  r = \$20 .    1. Suppose the firm wants to produce 27,000 units of output.  What is the most efficient combination of  labor and capital  ( L, K) ? Q = K 2 L   MP L = K 2    MP K =2KL In order to be efficient  MP L / MP = w/r   K 2 /2KL = 10/20   L=K Q = K 2 L    27,000=K K=30, L=30 2. Suppose that the firm wants to produce 27,000 units of output in the most efficient way possible.  How  much does the firm spend? TC=wL + rK  30*10+ 30*20 = 300+600=  \$900 3. Suppose that the firm wants to produce 27,000 units of output and has exactly 10 units of capital in
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Unformatted text preview: hand. In this situation, how many labor has to be employed? 27,000= 10 2 *L L = 270 4. Suppose that the firm wants to spend exactly \$1,200. What is the most efficient combination of labor and capital (L,K) ? \$1200= wL + rK \$1200= 10L + 20K, L=K \$1200 = 30K K=40, L=40 5. Suppose that the firm spends exactly \$1200 in the most efficient way possible. How much output can the firm produce? Q = K 2 L With \$1200, L=40, K=40 Q= 40 2 *40 Q=64,000...
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## This note was uploaded on 08/08/2011 for the course ECON 220:103 taught by Professor Clare during the Spring '11 term at Rutgers.

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