2350pqset0002 - York University ECON2350 V Bardis Practice...

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York University - ECON2350 - V. Bardis Practice Set 2 1. Consider the economics of the following story. Tomorrow, Jerry can either work for his uncle for w dollars an hour or spend his time collecting flowers from a forest nearby, which he can sell at the market for p dollars per flower. Jerry’s production function is given by q = 4( L - 1) 1 / 2 where q is the output and L is the total time Jerry devotes in the ‘flower’ business. (He spends 1 hour travelling to the forest and back and L - 1 hours collecting flowers in the forest.) (a) Find and draw Jerry’s Average and Marginal Product? At what L value are they equal? What is the corresponding level of output (the value of q )? (b) What is Jerry’s cost function? (c) Find and draw Jerry’s Average Cost, Marginal Cost and Average Variable Cost assuming w = 8. (d) What is Jerry’s supply (as a function of w and p ) if he has already gone to the forest? (e) What is Jerry’s supply (as a function of w and p ) before he goes to the forest? (f) How many units will Jerry produce if p = 8 and w = 8? What will be his profit? What will be his producer surplus? 2. Suppose Jerry’s production function in question 1 above is given in general by q = a ( L - t ) 1 /b where t are the hours spent traveling, and a and b are ‘technology parameters’ such that a > 0 and b 1. Assume further that b = 2. As before, p and w denote the prices of output and labour. Find how an increase in a will affect Jerry’s supply of flowers. How will his supply change if p increases instead? What if only w increases? Finally, what will be the effect of an increase in t on Jerry’s supply, other things equal?
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