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Problem Set 3

Problem Set 3 - Econ 100A Microeconomics Professor Reynolds...

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Econ 100A – Microeconomics Professor Reynolds Department of Economics University of California, Berkeley Problem Set 3 Due 8:10 am March 1 1. 11.2B 2. Suppose I have a factory that can produce chocolate chip & walnut cookies using labor (cooks - l) and capital (ovens - k). My production function happens to be 40 l .25 k .5 . The wage is $5 and the oven rental fee $20. I sell each cookie for $3. A. The number of ovens is fixed at 2. Graph the production function and an isoprofit line to determine the profit maximizing level of labor. (l on horizontal axis, x on vertical) B. Do I have increasing, decreasing, or constant returns to scale? What is the profit maximizing level of production for the other two types of production functions? C. Now allowing the number of ovens I can rent to vary, graph the isoquant and isocost curves. D. Letting the oven rental fee be r instead of $20, set up the cost minimization problem graphed in C. E.
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