Quiz _3 - Production Function

Quiz _3 - Production Function - L when 4 units of labor are...

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Quiz #3 – Production Functions 1) Currently the wage rate is \$6/hr and capital is rented at \$12/hr. Assume the marginal product of labor is 50 units of output per hour and the marginal product of capital is 75 units of output per hour. a) Is the firm using the cost-minimizing combination of labor and capital? How do you know? b) If not, should the firm increase or decrease the amount of capital used in its production process? 2) A firm’s production function is given by 2 1 2 1 L K Q = and its capital is fixed at 1 unit. a) Calculate the marginal product of labor (MP
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Unformatted text preview: L ) when 4 units of labor are utilized. i. ( Hint : remember that MP L is dQ/dL, or the derivative of the prod function with respect to L.) b) Suppose the firm can hire labor at a wage of \$5 per hour and output can be sold at a price of \$25 per unit. Determine the profit-maximizing levels of labor and output. i. ( Hint : Remember that the firm maximizes its profit when VMP = P * MP L = w ) C:\ My Documents\1-Man Ec 387\1 - Winter 2010\class 9 – cost functions\4de001d66eecafd7f0ccc891719cb07c3b499444.doc 1...
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