Problem Set 7 - UCLA Economics 11 Fall 2010 Professor...

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UCLA Economics 11 Fall 2010 Professor Mazzocco Problem Set 7 Because of the midterm this problem set will not be graded and you do not have to turn it in. However, solving the following exercises is excellent practice for the midterm. 1) Let the production function be . Let v be the price of K and w the price of L. a) Derive the contingent demand functions for K and L . b) Substitute the contingent demand functions in the total cost that you minimized in part a) to obtain the total cost function. c) Find the amount of K and L necessary to produce q =100 when v=2 and w=1. d) Find the average and marginal cost functions. 2) Suppose that a production function is given by q=L+K 0.5 . Let v be the price of K and w the price of L. a) Find the marginal productivity of labor and capital. b) Find the optimal combination of inputs for producing 347 units of output when w=4 and v=1. (Hint: find the contingent demand functions) c) Now suppose the price of both inputs rise by 10 percent, how will the firm optimally alter its use of inputs to produce 347 units of output?
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