MI PS07 solutions

# MI PS07 solutions - 1 Solution The marginal product of the...

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1. Solution: The marginal product of the two inputs are: Given the output level and factor prices and , the conditional demand of the two input factors are determined in following two conditions: We can solve out the solution as And the long run cost function is The marginal cost function is The average cost function is Note the average cost is always half the value of the marginal cost. Given price , the quantity supplied is determined by Or equivalently, This is the supply function. Given , the short run production function is And the short run conditional demand for is

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The short run total cost function is The short run total variable cost is \$ MC The short run marginal cost is AVC Short run supply curve: , or 25 y Note that the minimum of of the short run average cost curve is 0, attained when , which requires 0 input of . So we know, at price , the firm is indifferent between shut down and producing in the short run. Then the marginal product of labor is 2. Solution: k The iso-quant line for output level is as the red kink line shows. The slope of the line connecting the two intercepts is
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