ECON 1100:
Intermediate Microeconomics
Instructor: Sandra Orozco
Homework 3
Due date: October 6, 2010
IMPORTANT NOTE: Do not forget to label your graphs properly!!!
1.
(10 points) Suppose the production of airframes is characterized by a Cobb– Douglas
production function:
Q = LK
.
Suppose the price of labor is $ 10 per unit and the price of capital is $ 1 per unit. Find the
cost minimizing combination of labor and capital if the manufacturer wants to produce
121,000 airframes.
2.
(20 points) The processing of payroll for the 10,000 workers in a large firm can
either be done using 1 hour of computer time ( denoted by K) and no clerks or with
10 hours of clerical time ( denoted by L) and no computer time. Computers and
clerks are perfect substitutes; for example, the firm could also process its payroll
using 1/ 2 hour of computer time and 5 hours of clerical time.
a) (5 points) Sketch the isoquant that shows all combinations of clerical time and
computer time that allows the firm to process the payroll for 10,000 workers.
b) (10 points) Suppose computer time costs $ 5 per hour and clerical time costs $ 7.50 per
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 Fall '06
 Unver
 Economics, Microeconomics, Cost curve, total cost curve, run total cost

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