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intmicro_problemset_3 - Problem Set 3 Due March 31-April 1...

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Problem Set 3 Due: March 31-April 1 Intermediate Microeconomics, Spring 2011 Prof.Gemici Answer the questions below in as much detail as possible. Make sure you show all calculations. You will not be given any credit for just writing down the answer without showing the derivations and calculations. The solutions to this problem set are due the beginning of your Recitation class. 1. A firm’s production function is given by: Q = K 2 L The wage rate is w = 10 and the rental rate of capital is r = 20. Suppose the firm wants to produce 27 , 000 units of output. (a) What is the most efficient combination of labor and capital (L,K)? (b) How much does the firm spend? 2. Suppose that a firm’s production function of output Q is a function of only two inputs, labor (L) and capital (K) and can be written as, Q = 25 LK Let the wage rate for labor be w = 5 and the rental rate of capital be r = 1. Find the equation for the firm’s long-run total cost curve as a function of quantity Q.
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