Exam2A_12F_Ans

# Either write it as an algebraic function or draw it

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Unformatted text preview: the variable cost. Using the answer above, answer the following: What is the variable cost? How much is the fixed cost? (8 pts) VC = (5/8)Q; FC = 80 e. In the long- run, suppose w=\$5 and r=\$20 again. Draw the isocost curve when the total expenditure is \$40? (Either write it as an algebraic function or draw it on graph above.) What is the slope? (6 pts) Cost :40=5L+20K; the slope=- (1/4) f. Now, you, the president of company, decided the production level to be Q=32. The slope of this isoquant curve (=MRTS) at point (L0, K0) = - (2K0/L0). What is the cost minimizing optimal combination of (L, K)? What is the minimized cost at Q=32? Show your work. (15 pts) (1) MRTS = slope of isocost curve: - (2K/L) =- (w/r); - (2K/L)=- (1/4) (2) on the isoquant curve, Q=32: 32 =4L From (1) , L=8K; Then use this (L=8K) and replace L in (2); Then (2) is 32 =32K3/2 ; Thus K=1, then L=8...
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## This document was uploaded on 02/06/2014.

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