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Unformatted text preview: (1) Lamda = Marginal cost of output (2) Factor cost = marginal cost * marginal product of that factor = marginal revenue product of that factor (3) Solving for lamda and substituting, ratio of prices equals ratio of marginal products, which s mrts, hence, optimal solution is tangency between lines. v) Expansion path (1) Since w and v are fixed, a series of tangencies can be defined to show the mix of inputs for each level of output (2) Solve w/v = mrts for K and you have an expansion path Answers 1 TC = rK + fN 2 K = 2 (f/r) N N = (1/2) (r/f) K mp N = 4 K 1/2 N-3/4 mp K = 8 K-1/2 N 1/4 mp N = w = 4 K 1/2 N-3/4 mp K r 8 K-1/2 N 1/4 Solve for K (or N)...
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This note was uploaded on 04/10/2008 for the course ECON 3150 taught by Professor Tittle during the Spring '08 term at Georgia Institute of Technology.
- Spring '08