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hw 9 - HOMEWORK 9 DUE AT START OF CLASS MONDAY FEBRUARY 14...

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Unformatted text preview: HOMEWORK 9 DUE AT START OF CLASS MONDAY, FEBRUARY 14 1. Consider a firm with long-run production function Q =f(K, L): (0.1)KO'5L0'5 where Q is output, L is labor input, and K is capital input. Input prices are r = 4 for capital and w = 1 for labor. a. In the short run, capital is fixed at level K = 10. What are the firm’s short-run total cost, marginal cost, and average total cost as functions of output, SRTC(Q, 4, 1', K = 10), SRMC(Q, 4, 1; K = 10) and SRATC(Q, 4, 1; K = 10) respectively? b. What is the firm’s short—run supply as a function of the per—unit price, p, that it faces for its output? 0. In the short run, what is the firm’s producer’s surplus as a function of the per—unit price, p, that it faces for its output? Problems 2, 3, and 4 examine some comparative statics results as parameters of Problem 1 are changed. 2. How would the answers in Problem 1 change if the firm faced input price 7' = 9 for capital (instead of r = 4)? 3. How would the answers in Problem 1 change if the firm faced input price w = 4 for labor (instead of w = 1)? 4. How would the answers in Problem 1 change if the firm’s capital level were fixed at level K = 5 (instead of level K = 10) in the short run? READING ASSIGNMENT for Monday, February 14th Part of text Chapter 9 Short—Run Equilibrium: pages 319 — 28 Producers’ Surplus: pages 348 — 52 Profit Maximization implies Cost Minimization: pages 358 — 9 ...
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