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Test+1+Fa+_03 - 1 Assume a competitive market in the short...

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1. Assume a competitive market in the short run for a firm’s products. Assume a standard cost function. On three blank pieces of white paper provided, draw three graphs. On the first graph, draw the marginal and average cost and the marginal and average revenue curves (4 curves total). On the second graph, relate the respective marginal and average curves to their total cost and revenue curves. On the third graph, relate the total curves to a graph of the profits. Label all points that relate each of the three graphs to each other. (40 points) The next four question pertain to the formula q = L 1/4 K 1/2 (40 Points) (10 Points Each) Starting with the production function, q = L 1/4 K 1/2 , answer the following questions: 2. What is the Rate of Technical Substitution of this production function? 3. Suppose L =1 6, wages are $10 and the opportunity cost of capital (price of capital) is $1, what is the total cost function?
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4. Suppose L = 16, how much capital is needed to produce 20 units of output? 5. Suppose L = 16, wages are $10 and the opportunity cost of capital (price of
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