Problem 2
Problem 1
L K Q Q/L ∆Q / ∆ L
Suppose an isoquant for a particular production
3 8 33 n.a
process were so tightly curved that it was almost
4 8 9
L-shaped. What would this imply about the
5 8 4
technology?
6 8 7.5 5
Fill in the blanks entries
Problem 3
If MP is declining, is AP always declining? Why
or why not?
Problem 4 Problem 6
Why is the TP of labor curve never downward You manage a department in a large
sloping? corporation. Two years ago, you had 20
workers and produced 40,000 units. The
Problem 5 company allocated 10 more workers to your
Q = - 50 + 10 L – 0.02 L2 department last year, and output increased to
45,000. You just received a memo from your
1) Find out MP
boss indicating that he is very concerned
2) Find out AP about the 500 – unit fall in AP. How can you
3) At what level of labor input does the AP curve defend yourself?
reach its maximum? What is the MP at this input
level?
Problem 7 Problem 8
Josh, a second year MBA student, takes 3 hours Does AFC always decline with increases in output? Why or
off one evening and uses his car to go to a why not?
movie with a friend.
Problem 9
Ticket: $5 Q FC VC TC AVC ATC MC
Gasoline: $ 1 13 1125 975 n.a
14 1120
Josh declined to tutor a student that night at $ 15 1275
10 an hour. He could also used the 3 hour to 16 90
work as a grader for a professor at $ 15 an 17 95
hour. Fill in the blanks
What is Josh’s economic cost of going to the
movie?
1
Problem 12
Problem 10
A firm with a U – shaped LR ATC wants to find A firm estimated its AC curve last year and found
the production level that minimizes LAC. that
Currently, the firm is producing at an output
level where LMC > LAC. Should the firm AC = 1000 – 0.05 Q.
increase or decrease output? This year it estimated its ACs and found that
Problem 11 they were
Suppose the LR AC for a firm is given by: AC = 900 – 0.05 Q
LAC = 100 + ( 150 – Q)2 Are there increasing or decreasing returns to
Are there economies or diseconomies of scale scale?
for Q < 150? For Q > 150?
Problem 13
Problem 14
An office wants to rent a new copying machine. A firm has a following cost data:
• Small model: costs $200 per month for rental
and $0.035 per copy. Output Total cost Variable cost
• Large model: costs $400 per month for rental 100 7,000 3,000
and $0.02 per copy. 101 7,400 3,400
Currently, the office makes about 15,000 copies 102 7,900 3,900
per month. Which machine should they rent?
What is the smallest number of copies per
month that would make it desirable to rent the What are ATC, AFC, AVC and MC at these
large model? output levels?
Problem 15 Problem 17
TC = 300 + 3 Q + 0.02Q2 A businessman uses K and L to produce X.
where
TC: total cost in dollars and Q: number of cases of Production function is: Q = 2K ( L – 2 )
goods. PK = 600, PL = 300, TC = 15000
What are the corresponding ATC, AVC, and MC functions? a) Determine marginal product function ( MP)
Problem 16 of K and L. Determine MRTS
A firm has a long-run total cost function b) Determine Qmax
C (Q ) = 180,000 + 30Q + 2Q2 c) If he wants to produce 900 units, find out
1) MC function? TCmin.
2) ATC function?
3) At what quantity is ATC minimized?
2
Problem 18
Production functions:
a) F (K, L) = K2 L
b) F (K, L) = 10K + 5L
c) F (K, L) = (KL)0.5
Are there increasing/ decreasing/ or constant
returns to scale?
