1. (10 points)(a) You are an efficiency expert hired by a manufacturing firm that uses K (capital) and L(labor)as inputs. The firm produces and sells a given output. If w (price of labor) = $40, r (price ofcapital) = $100, MP₁ = 20, and MPx = 40 is the firm minimizing cost? Please explain and showany calculations.(b) The production function for a competitive firm is Q=K05L05. The firm sells its output at aprice of $10 (per unit) and can hire labor at a wage of $5 (per worker).K0.5Marginal Product of labor = 0.50.5Capital is fixed at 25 units. Since capital is fixed, there is no marginal product of capital.What is the profit-maximizing quantity of labor? Please show your calculations.

Approach to solving the question:For part (a), we need to check if the firm is minimizing cost by…

Answered: 1. (10 points) (a) You are an…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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6. Zenande believes the production of a dress requires 10 labour hours and 5 machine hours to produce. If she decides to operate in the short run, she must spend R5000 to lease her business space. It has also been determined that a labour hour costs R500 and a machine hour costs R1000. Which of the following is Zenande's cost of production as a function of dresses produced? a) C(q) = 10000+ 5000q. C(q) = 5000+ 5000q. b) c) C(q) = 5000+ 10000q. C(q) = 5000+ 1500q. d)
Question four Suppose that a firm's total cost equation is TC= 10,000+ 1000 + 0.25Q2 Where TC is total cost and Q is the level of output. (a) What output level will minimize the firm's average total cost? (b) Calculate the average and marginal cost at the average cost minimizing output level
Q1) If the firm’s average cost curves are U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve?
2.)Do fixed costs refer to the long run or short run? Why?3) Suppose that labor is the only variable input in the production process. If the marginal cost of production is diminishing as more units of output are produced, what can you say about the marginal product of labor?4) What are economies of scale? What are economies of scope? What is the difference between the two?
1. Figure 1 shows the production function of a firm. Y В Y2 Y1 X X1 X2 a) What are the variables along (i) of the X axis? (ii) Y axis? b) Does the firm operate in the short term or long term? c) Referring to the diagram above, what is the level of input where (i) firms experiencing increased marginal output? (i) does the firm experience a declining marginal output? (i) the firm achieves maximum marginal output? (iv) the firm achieves a blank marginal output?
5. Costs in the short run versus in the long run Ike's Bikes is a major manufacturer of bicycles. Currently, the company produces bikes using only one factory. However, it is considering expanding production to two or even three factories. The following table shows the company's short-run average total cost (SRATC) each month for various levels of production if it uses one, two, or three factories. (Note: Q equals the total quantity of bikes produced by all factories.) Average Total Cost (Dollars per bike) Number of Factories Q = 100 Q = 200 Q = 300 Q = 400 Q = = 500 Q = 600 %3D 1 360 200 160 240 400 720 2 540 300 160 160 300 540 720 400 240 160 200 360 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 100 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using
(a) Explain intuitively why a firm's average cost curves are U-shaped and why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve? (b) You are given the following data on output and inputs for 10 production periods: TIME OUTPUT CAPITAL (K) LABOR (L) 1 225 12 20 240 14 22 3 278 10 24 4 212 14 18 5 205 12 20 6 297 16 24 7 242 16 20 8 155 10 14 212 8 20 10 180 8 14 Estimate the parameters (A, a, ß ) of Cobb-Douglas production function using the Least-squares (OLS) regression method. [ Assume Q = AK“ L® ]. Use the estimated parameters to determine: Returns to Scale, Equations for the marginal product of labor and Capital. Calculate the marginal products of capital and labor for the input combinations: K = 10, L = 25. Make a comment based on your findings.
Consider the following marginal cost function MC= 5 + 2qi. (a) Does the production process exhibits increasing returns? decreasing returns? constant returns? (b) If the price is $23. What’s the optimal production level? (c) If the price is $31. What’s the optimal production level?
For each lettered space in the following table, determine the appropriate dollar amount.
7. The unit price of production input K is 8 euros and the unit price of production input L is 10 euros. What is the minimum cost at which a company could produce 20 units of product Y if the company's production function is Y = K / 4 + L?
5. Suppose a firm's cost function is given as C = 6q+10q2-4142+30 and it must be that 91 +92 = 34. What q1 and q2 will minimize cost?

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