200 Test 3.pdf

The firm has a second factory with long run cost

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units of output. The firm has a second factory with long-run cost function c = 8y 2 + 39. To maximize profits, how many units of output should be produced in the second factory? Need MC 2 = MC 1 to maximize profits MC 1 = 8y 1 = 224 if y 1 = 28 MC 2 = 16y 2 = 244 if y 2 = 14 5. [1 Mark] A competitive firm has the short-run cost function c = 2y 3 – 16y 2 + 64y + 50. In the short-run, this firm will supply a positive amount of output, so long as the price is greater than Lowest price is AVC = MC AVC = 2y 2 – 16y + 64 and MC = 6y 2 – 32y + 64 2y 2 – 16y = 6y 2 – 32y or 16y = 4y 2 means y = 4 p = MC (4) = 6(4) 2 – 32(4) + 64 = 32 6. [1 Mark] A competitive firm has long-run cost function c = 3y 2 + 27. In the long run, it will supply a positive amount of output, so long as the price is greater than Lowest price is MC = AC AC = 3y + 27/y and MC = 6y imply y = 3 MC (3) = 18

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SURNAME, Name: __________________________ Number: ______________________ 7. [3 Marks] A Los Angeles firm with technology y = 4x 1/2 sells output for p = \$100 and purchases the sole input for w = \$50. Provide a labelled Iso-profit diagram showing how the firms input and output decisions would change if the government provided a \$10 per-unit subsidy for the input. π = 400x 1/2 – 50x has maximum at x = 16, y = 16, π = 800 so Iso-profit line is y = 8 + 0.5x π = 400x 1/2 – (50 – 10)x has maximum at x = 25, y = 20, π = 1000 so Iso-profit line is y = 10 + 0.4x
SURNAME, Name: __________________________ Number: ______________________ 8. [3 Marks] A firm with technology q = K 1/4 L 1/4 hires inputs at competitive prices w = 0.25 and r = 1.00 and sells output at a competitive price p = 4.00. Provide a labelled isoquant diagram showing the substitution and output effects that

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• Summer '15
• RobertBarber
• Economics, π, University of Toronto Mississauga

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