W14 MIC Problem Set 6(1)

She already owns the building so she has no cash

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Unformatted text preview: already owns the building, so she has no cash outlay for its use. If she were to close the business, she could avoid all of her expenses, and, of course, would have no revenue. However, she could rent out her building for $300,000. a) Determine her accounting profit and her economic profit if she stays in the drug store business. If the two are different, explain the difference between the two values you have calculated. b) How would your answer change if the revenues were instead $1,400,000? (All costs are unchanged.) 2) The production function Q = M + LK describes the way output is produced from raw material, labor, and capital inputs. The corresponding input prices are m = 1, w = 16, and r = 4. Find the short-run total cost of producing 500 units of output under each of the following separate scenarios: a) K is fixed at 20 units. b) M is fixed at 100 units. 3) The excavation firm digs holes (i.e., produces output) with workers (labor) and shovels (capital). Its production function is described by Q = min{L, K}. Let w...
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