2. A firm's production function is Q = L0.5K 0.5. It is the short run and K is fixed at 100. The wage is 10 and the rental rate (cost of capital) is 5. a. Find marginal cost as a function of Q (not as a function of L, although using L might help you find the answer).| b. How much output does the firm produce if the price of output is 20? Calculate profit if the price of output is 20.
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- 10. Suppose a firm must pay an annual tax, which is a fixed sum, independent of whether itproduces any output.a. How does this tax affect the firm’s fixed, marginal, and average costs?b. Now suppose the firm is charged a tax that is proportional to the number of items itproduces. Again, how does this tax affect the firm’s fixed, marginal, and average costs?8. siuppose that the manager of a firm operating in a competitive market has estimated the firm's average variable cost function to be: AVC= 18-0.3Q Total fixed cost is $60 and the forecasted price of the firm's product is $12. 79 a. What is the corresponding marginal cost function? b. At what output is AVC at its minimum? C. How much outputs should the firm produce? d. How much profit or loss will the firm earn?,. A firm's total profit is generally at a maximum when total cost is at a minimum. a. True O b. False
- Explain the variable costs in the cost function. 2. Discuss how firms choose how much output to produce.If a firm will produce an additional unit of good or services, determine what will happen to their costs? a. The total cost will decrease O b. The total cost will be the same O . The total cost will be equal O d. The total cost will increaseCost LRAC 40 30 20 10 100 200 400 800 Output b. What happened to the cost of one good as the firm increased its output from 100 units to 200 units and from 200 units to 400 units? c. What is the firm experiencing as it increased it scale of operation from 100 units to 400 units? d. What is the firm experiencing if it chooses to produce at point P? Give reason for your answer. e. Which point would be the best point for the firm to produce at? Give reason for your answer.
- 1. Suppose that the price of the firm’s product is GH¢30.00, how much will the firm produce to maximize profit? How much is total profit? 2. Produce a graph of Total cost, Total fixed cost and Total variable cost (on one graph sheet/excel).What is the law of diminishing returns? Why does marginal product eventuallydiminish?b. Explain the relationship between marginal product and average product. Lin’s makes fortune cookies. Anyone can make and sell fortune cookies, so thereare dozens of producers. All fortune cookies are the same and buyers and sellersknow this fact. In what type of market does Lin’s operate? What determines theprice of fortune cookies? What determines Lin’s marginal revenue?d. What is the shape of the AFC curve and why does it have this shape?1. The value of the inputs owned and used by a firm is an explicit cost. a. True b. False
- 1. Isoquant is also called equal product curve, why? 2. Why marginal productivity of labour is diminishes? 3. Price, average revenue and marginal revenue in the perfectly competitive market is equal/same, why? 4. What do you mean by equilibrium of firm? What are the differences between fixed and variable cost?i. Calculate the marginal cost, marginal revenue and profit for each unitof production. ii. How many units should the firm produce to maximise profit?1.Suppose a chair manufacturer is producing in the short run (with its existing plant andequipment). The manufacturer has observed the following levels of production correspondingto different numbers of workers:Number of Workers Number ofChairs 1 10 2 18 3 24 4 28 5 30 6 28 7 25a. Calculate the marginal and average product of labor for this production function.b. Does this production function exhibit diminishing returns to labor? Explain.c. Explain intuitively what might cause the marginal product of labor to becomenegative.