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Quiz 4 final solutions

Quiz 4 final solutions - Quiz 4 Solutions Question 1 MP L1...

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Quiz 4 Solutions Question 1 MP L1 =80- 2L 1 and MP L2 =50- 2L 2 L 1 + L 2 =60 (1 marks) MP L1 =80- 2(60-L 2 )=80-120+L 2 =L 2 -40 MP L1 =MP L2 (1 marks) L 2 -40=50- 2L 2 , 3L 2 =90, L 2 =30 and thus L 1 =30 (1 mark) In order to calculate how much output is produced in each plant we need to draw the MP curves and calculate the are within the curves up to the point where labour equals 30. The graphs are provided at the end of this document. The calculation goes as follows. For Plant 1 we need to calculate the area of the ABC triangle and the area of the CBDO rectangle. ABC=1/2(30)(60)=900 CBD0=(30)(20)=600 Thus output produced in plant 1 is 1500 The same procedure follows in calculating output for plant 2 EFH=1/2(30)(30)=450 HFG0=(30)(20)=600 Thus output produced in plant 2 is 1050 Total output produced come down to 2550 (2 marks for correct answers on individual output)

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Question 2 Students are given Q A =10K A 1/2 L A 1/2 andQ B =20K B 1/2 L B 1/2 as well as the respective ratios of Marginal Products: MP K A / MP L A =L A /K A and MP K B / MP L B =L B /K B Students need to figure out that K A +K B =100 and L A +L B =100 in order to solve the problem correctly. So we know that we can allocate 100 units of capital and labour between the 2
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Quiz 4 final solutions - Quiz 4 Solutions Question 1 MP L1...

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