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Unformatted text preview: Problem Set 1 Solution Key 1- ChapelJet is a commercial aircraft manufacturer. The factors of pro- duction of this production process are labor and capital. If ChapelJet hires L units of labor and rents K units of capital, it can produce up to L 1 = 2 K 1 = 2 units of aircraft. Hence, the production function is f ( L;K ) = L 1 = 2 K 1 = 2 . Suppose ChapelJet wants to minimize total expenditures on the factors of production. However, to be able to survive in the hostile commercial aircraft market Chapel- Jet must produce at least 10 units of aircraft. Suppose the per unit price of labor, w, is $1 and the per unit price of capital, r, is $4. a- Identify the exogenous and the endogenous variables in this cost mini- mization problem. Exogenous Variables: the minimum amount of aircraft that ChapelJet has to produce to survive, wage rate (per unit price of labor), rent rate (per unit price of rent). Endogenous Variables: the amount of labor ( L ), and the amount of capital ( K )....
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This document was uploaded on 10/28/2011 for the course ECON 410 at UNC.
- Fall '07