Suppose a firm has the following widget production function: q=2K/₁2, the wage rate, w = $20 and the rental rate on capital is $180. Assume widgets are produced in a perfectly competitive market. (hint: it is a Cobb-Douglas production function) In the short run, let K = 25 and assume the price of widgets is $75. What is the firm's short run cost function and supply function? How many widgets should the firm produce? What is their profit or loss? Currently, how would they want to adjust their K and L if they could make an adjustment? How do you know? Assume market demand is the following: P = 120 -0.01Q. If all firms have identical production and cost functions, in the short run with p = $75, how many firms are there? What do you expect to see happen in this industry in the long run? Now assume the firms merge into one monopolist in the long run. What quantity and price will the firm set to maximize profit in the long run?

Suppose a firm has the following widget production function: q=2K/₁2, the wage rate, w = $20 and the rental rate on capital is $180. Assume widgets are produced in a perfectly competitive market. (hint: it is a Cobb-Douglas production function) In the short run, let K = 25 and assume the price of widgets is $75. What is the firm's short run cost function and supply function? How many widgets should the firm produce? What is their profit or loss? Currently, how would they want to adjust their K and L if they could make an adjustment? How do you know? Assume market demand is the following: P = 120 -0.01Q. If all firms have identical production and cost functions, in the short run with p = $75, how many firms are there? What do you expect to see happen in this industry in the long run? Now assume the firms merge into one monopolist in the long run. What quantity and price will the firm set to maximize profit in the long run?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

100%

3
1=2K²/12 1²/2
the wage
Suppose a firm has the following widget production function: q=2K/2
rate, w = $20 and the rental rate on capital is $180. Assume widgets are produced in
a perfectly competitive market. (hint: it is a Cobb-Douglas production function)
a.
In the short run, let K = 25 and assume the price of widgets is $75. What is
the firm's short run cost function and supply function? How many widgets should
the firm produce? What is their profit or loss?
Currently, how would they want to adjust their K and L if they could make an
adjustment? How do you know?
b.
Assume market demand is the following: P = 120 -0.01Q. If all firms have identical
production and cost functions, in the short run with p = $75, how many firms are
there? What do you expect to see happen in this industry in the long run?
C.
Now assume the firms merge into one monopolist in the long run. What quantity
and price will the firm set to maximize profit in the long run?

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