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Handout 6 Answer - Handout Answer Q1 a The fixed input is...

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Handout Answer Q1, a. The fixed input is capital. So when Q=0, the firm still has cost. It is fixed cost, 90 dollars. b. When L=6 VC=108, so wL=VC, w=18. Fixed cost is 90, the amount of capital is 45, so Pk=2. L K Q VC FC TC AVC AFC ATC MC M P L 0 4 5 0 0 90 90 1 4 5 1 18 90 108 18 90 108 18 1 2 4 5 4 36 90 12 6 9 22.5 31.5 6 3 3 4 5 1 0 54 90 14 4 5.4 9 14.4 3 6 4 4 5 1 5 72 90 16 2 4.8 6 10.8 3.6 5 5 4 5 18 90 90 180 5 5 10 6 3 6 4 5 1 9 108 90 18 5.7 4.7 10.4 18 1 c. The above table is the answer. d. L=3 e. L=4 f. L=5 g. L=4 h. When the output amount is low, MC<AVC, so AVC deceases. When output amount is high enough (L>=5) MC>AVC, so AVC increases. i. Output price is $18, the below table is the answer. L Q TR TC Profit 0 0 0 90 -90 1 1 18 108 -90 2 4 72 12 6 -54 3 10 180 14 4 -36
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4 15 27 0 16 2 108 5 18 32 4 180 144 6 19 34 2 18 144 j. The firm should choose Q=18 (L=5) or Q=19 (L=6), the two production have the same profit. Q2, a. 1 unit of output, TC of plan A 14 TC of plan B 52, so choose plan A. 2 units of output, TC of plan 18 TC of plan B 54, so choose plan A. 3 units of output, TC of plan 26 TC of plan B 56, so still plan A.
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