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E301F09 Old MT2 Key

E301F09 Old MT2 Key - Department of Economics LeBow College...

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Department of Economics LeBow College of Business Economics 301 Drexel University Professor Stehr Midterm II Suggested Answers The exam contains questions worth a total of 100 points and is worth 24% of your class grade. Palm pilots, cell phone calculators, and regular calculators are not permitted. Answer all questions, use graphs where appropriate, and be clear and complete in your explanations. Write your answers in the space provided. Your Name ______________________________________________________ 1
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1. Suppose the production function and input prices for a firm are as given below: 3 1 3 2 L K Q = P L = 1 P K = 2 a) Find expressions for the marginal product of labor and the marginal product of capital. (4 points) b) Find an equation that relates the amount of capital employed to the amount of labor employed when the firm is cost minimizing (the expansion path). Use your equation to find the cost minimizing combination of labor and capital when output is 17. (6 points) c) Find the long run total and marginal cost functions for the firm LRTC = LRTC(Q) and LRMC = LRMC(Q). (Hint: LRMC may be found by taking the derivative of LRTC with respect to Q.) (6 points) 2
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2. The cost schedule below is for a profit maximizing firm in a perfectly competitive industry.
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