3. Consider the profit function for firm that can produce 1 finished good y with 2 factors 1 and 22. Say one factor (factor 2) is fixed. Say the output price is fixed, and the production function is Cobb-Douglas and constant returns to scale. Say further the factor price for factor 1 increases, everything else fixed. Then output can either fall or rise if the firm is profit maximizing. 4. Consider the same setting as question 3. Now, say that the price of the finished output good goes up, everything else fixed. Then the demand for factor 1 must necessarily increase. 5. Again consider the same production setting of question 3, but consider the cost minimization problem in the short-run. In this case, it must be true the cost function is concave in output. True or False?

3. Consider the profit function for firm that can produce 1 finished good y with 2 factors 1 and 22. Say one factor (factor 2) is fixed. Say the output price is fixed, and the production function is Cobb-Douglas and constant returns to scale. Say further the factor price for factor 1 increases, everything else fixed. Then output can either fall or rise if the firm is profit maximizing. 4. Consider the same setting as question 3. Now, say that the price of the finished output good goes up, everything else fixed. Then the demand for factor 1 must necessarily increase. 5. Again consider the same production setting of question 3, but consider the cost minimization problem in the short-run. In this case, it must be true the cost function is concave in output. True or False?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Economic profit of $25. Economic loss of $7. Economic loss of $13. Economic profit of $7.
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7. You are economic consultant for Jack, who farms raw cotton in a perfectly competitive market. One day he gives you the following data at his present level of production: Output = 2000 pounds, market price = $5.00, total cost =$8000, fixed cost=$2000, marginal cost=$5. The minimum of AVC occurs at {1000 pounds at $2} and the minimum of ATC at {1500 pounds at $3.5}. Please help Jack with the following questions based on the above figures: a. Draw a graph for the raw cotton market and a graph for Jack’s farm current situation that includes MC, ATC, and AVC, labeling all relevant points on axes with numerical values. Is Jack maximizing the profit (minimizing the loss)? Why or why not? Label the total profit/loss area. b. Suppose more farmers enter the raw cotton market until the market price is $3.00 per pound. On the same graphs, show the effect of this change in the market place. Would you like to suggest Jack leaving the market in the short run? Explain your answe
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4. A competitive firm has the three-factor production function f(x, y, z) = (x + y)2/3z4/3. The factor prices used to be w = 4, wy = 2, and w, = 1. Suppose %3D that the price of factor y doubled while the other two prices stayed the same. Then the minimum cost of production: A. doubled. B. increased by more than 50% but less than 100%. C. increased by less than 50%. D. stayed the same.
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Consider the following table showing the quantity of output and TC in the long run for Firm X: Output: 1 2 3 4 5 6 7 TC: TK. 20 TK. 38 TK. 54 TK. 68 TK. 80 TK. 102 TK. 126 Explain whether Firm X experiences IRS, CRS, DRS?