{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ajaz_eco_204_2012_2013_chapter_13_Short_Run_CMP_PP

ajaz_eco_204_2012_2013_chapter_13_Short_Run_CMP_PP -...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. 1 ECO 204 Chapter 13: Practice Problems & Solutions for The Short Run Cost Minimization Problem in ECO 204 (this version 2012-2013) Department of Economics (STG), ECO 204, Sayed Ajaz Hussain _________________________________________________________________________________________________ P RACTICE P ROBLEMS W ITH S OLUTIONS TO C HAPTER 13: T HE S HORT R UN C OST M INIMIZATION P ROBLEM 1 Updated: 3/11/2013 (13.1) True, False: Short run cost of production to produce a target output is smaller than its long run cost of production. Explain your answer and give a graphical analysis to prove your point. You can assume Cobb-Douglas production function. (13.2) State the optimal labor rule and explain under what condition it hold. (13.3) Given the following production function, state under what conditions it is increase, decreasing and constant returns. Where is quantity is fixed capital, are labour, material input 1, and material input 2. (13.4) Consider a company with two divisions: division 1 and division 2. Suppose the price of each division’s output are independent of output (i.e. constants). However, the are functions of output (i.e. are not constants): for example, perhaps ( ) and ( ) where are constants . Derive the breakeven quantity of division 1 (use the cost functions provided). (13.5) In this question you will examine the properties of the cost, average cost, average variable, average fixed and marginal cost functions for the short Cobb-Douglas production function: are parameters and may be positive, zero or negative. (a) When does this production function exhibit increasing, constant or decreasing returns to labor? What is the connection between returns and returns to scale? (b) What is the percentage change in output due to a 1% increase in labor? Interpret the elasticity in light of the answer in part (a). 1 Thanks to Akber Nafeh for preparing these PPs from past HWs, tests, and finals. For feedback and comments please e-mail [email protected]
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. 2 ECO 204 Chapter 13: Practice Problems & Solutions for The Short Run Cost Minimization Problem in ECO 204 (this version 2012-2013) (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 decreasing returns. (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?
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern