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ECO 204 Chapter 13: Practice Problems & Solutions for The Short Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. (c) Derive the optimal (short term) demand for labor. Why doesn’t optimal labor depend on wages?
(d) Derive the short run total cost function. Examine the functional form when there are increasing, constant and
(e) Derive the short run average variable cost and average cost functions. Examine the functional form when there are
increasing, constant and decreasing returns. In particular where does the U shaped short run AC come from?
(13.6) Ajax Corporation has production function and has target output q. Currently, and (a) Under what conditions will Ajax have constant returns? Interpret constant returns.
(b) For a given value of α, what is Ajax’s short run demand for labor?
(c) For a given value of α, what is Ajax’s short run cost function?
(d) Will Ajax’s short run AC decline, remain constant, or increase with q?
(13.7) Given The short run production function is: The short run cost minimizing amount of labor is: The short run cost function is: ( ) ( )
( ) ( ) Suppose the company has constant returns (not the same as constant returns to scale)
(a) What is the short run production function?
(b) What is the elasticity of output with respect to labor? Does your answer make sense give the company has constant
(c) Suppose the company doubles labor. Without using the equation for ( ) what is the impact on total variable cost?
Average variable cost? Average cost
(d) Suppose the company doubles labor. Using the equation for ( ) what is the impact on total variable cost? Averag...
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