### Economics Practice Questions#### Question 1**What is the elasticity of substitution for the production function $ f(K, L) = K^{1/2} + L^{1/2} $?**- a. $ \sigma = \frac{1}{4} $- b. $ \sigma = \frac{1}{2} $- c. $ \sigma = 1 $- d. $ \sigma = 2 $- e. $ \sigma = 4 $*Selected Choice: c. $ \sigma = 1 $*#### Question 2**A firm's cost function is $ C(q) = 2000 + 10q + 5q^2 $. If the firm is a price-taker in a market that is in long-run equilibrium, what quantity does the firm sell?**- a. $ q = 5 $- b. $ q = 10 $- c. $ q = 20 $- d. $ q = 50 $*Selected Choice: c. $ q = 20 $*### ExplanationFor Question 1, we are asked to determine the elasticity of substitution for the given production function $ f(K, L) = K^{1/2} + L^{1/2} $. - Elasticity of substitution is a measure of the ease with which one factor can be substituted for another in the production process.- For the Cobb-Douglas production function of the form $ K^aL^b $, the elasticity of substitution $ \sigma $ is typically equal to 1.- The correct choice is thus c. $ \sigma = 1 $.For Question 2, the firm's cost function $ C(q) = 2000 + 10q + 5q^2 $ is provided. To find the quantity $ q $ that the firm sells in long-run equilibrium:- The firm will produce where marginal cost (MC) equals the market price (P). The marginal cost is derived from the cost function.- In a perfectly competitive market in long-run equilibrium, firms produce where price (P) equals both marginal cost (MC) and average cost (AC), ensuring no economic profit.-The correct choice here is c. $ q = 20 $.

In a perfectly competitive market there are large number of firms producing similar and identical…

What is the elasticity of substitution for the production function f(K, L) = K2 + L2? O b. o = %3D O c. o = 1 O d. o = 2 O e. o = 4 Clear my choice A firm's cost function is C(q) = 2000 + 10g + 5q². If the firm is a price-taker in a market that is in long-run equilibrium, what quantity does the firm sell? %3D O a. q = 5 O b. q = 10 O c. q = 20 1/14

What is the elasticity of substitution for the production function f(K, L) = K2 + L2? O b. o = %3D O c. o = 1 O d. o = 2 O e. o = 4 Clear my choice A firm's cost function is C(q) = 2000 + 10g + 5q². If the firm is a price-taker in a market that is in long-run equilibrium, what quantity does the firm sell? %3D O a. q = 5 O b. q = 10 O c. q = 20 1/14

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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