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problemset6answerkey - than the average cost then average...

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Middle East Technical University Spring 2011 Department of Economics ECON 201 Erol Çakmak TA: Osman Değer ANSWER KEY FOR PROBLEM SET 6

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K 5 10 L C q C AC=MC=1 2 4)a) q =min{2K, L}= min{2(tK), (tL)}=t min{2K, L}=tq hence CRS b) Q=2K=L=10 ; K=5 & L=10 c) C=wL+vK C=wq+v(q/2) C=4q+16(q/2) C=12q 12 12 q q q C AC 12 q C MC d)
5) 6)

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c) d) As long as the marginal cost of producing one more unit is below the average-cost curve, average costs will be falling. Similarly, if the marginal cost of producing one more unit is higher
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Unformatted text preview: than the average cost, then average costs will be rising. Therefore, the SMC curve must intersect the SAC curve at its lowest point. 7) Expansion path gets steeper. Since labor is more expensive now, cost minimum allocations has less labor and more capital. Producer shifts to a more capital intensive technology because of the expensive labor....
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