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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
 Codrin

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