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# problemset6 - Middle East Technical University Department...

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Middle East Technical University Spring 2011 Department of Economics ECON 201 Erol Çakmak TA: Osman Değer PROBLEM SET 6 1)There is a firm whose production function is Q= aK 0.15 L 0.35 and its expansion path is defined as K=4L. When this firm behaves rationally, it produces 230 amount of output with K= 8. If this firm had used 32 units of K, what would be the efficient production point for this firm? 2) Ba ş ak wants to go into the donut business. For \$500 per month she can rent a bakery complete with all the equipment she needs to make a dozen different kinds of donuts ( K =l, r =500). She must pay unionized donut bakers a monthly salary of \$400 each. She projects her monthly production function to be Q = 5 KL where Q is tons of donuts. a. With the current level of capital, what is the marginal product of labor? Is the marginal product diminishing? Explain. b. If Ba ş ak wishes to make 25 tons of donuts, how many bakers are required given the current level of capital? How much will it cost to produce this (totalcost)? c. Derive Ba ş ak ʹ s short run cost function with K=1.

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problemset6 - Middle East Technical University Department...

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