Scribd
Upload
49 views2 pages

Homework 8

This document provides the details of Homework 8 for the course MSC 514. It includes 7 questions related to production functions, costs, and economies of scale and scope. The questions cover topics like constant returns to scale, homogeneity, isoquants, cost functions, and cost minimization. Students are asked to perform calculations, draw graphs, and explain concepts for a total of 70 possible points. An additional question at the end asks students to estimate the time spent working on the assignment.

Uploaded by

Maido Te
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
49 views2 pages

Homework 8

This document provides the details of Homework 8 for the course MSC 514. It includes 7 questions related to production functions, costs, and economies of scale and scope. The questions cover topics like constant returns to scale, homogeneity, isoquants, cost functions, and cost minimization. Students are asked to perform calculations, draw graphs, and explain concepts for a total of 70 possible points. An additional question at the end asks students to estimate the time spent working on the assignment.

Uploaded by

Maido Te
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Maximum Points: 70

MSC 514: Homework 8

1. (21 points) Consider the production function


√
Q = β0 + β1 KL + β2 K + β3 L

where
0 ≤ βi ≤ 1, i = 0, ...3
(a) (5 points) If this function were to exhibit constant returns to scale, what restrictions should be
placed on the parameters β0 , ..., β3 ?
(b) (5 points) A production function q = f (L, K) is homogeneous of degree k if for any t > 0, the
following holds:
f (tL, tK) = tk f (L, K)
Show that, in the constant returns to scale case, this function is homogeneous of degree 1.
(c) (6 points) Show that, in the constant returns-to-scale case, this function exhibits diminishing
marginal productivities and that the marginal productivity functions are homogeneous of degree 0.
(d) (5 points) In the constant returns-to-scale case, calculate M RT SLK .
2. (22 points) To produce a recorded DVD, a firm uses one blank disk D and the services of a recording
machine M for one hour. (Note: This is the same setup as in Question 1 of Homeworks 6. ) The
production function in this case is given by:

Q = min{D, M }

(a) (4 points) Draw the isoquants for the production function.


(b) (4 points) Draw the total product curve of M for the production function.
(c) (4 points) Are your responses to parts (a) & (b) above different from each other? Why or Why
not?
(d) (10 points) Consider rental rate for D is v and wage rate for M is w. Calculate the firm’s long-run
total, average, and marginal cost functions.
3. (5 points) A firm uses two inputs of production to produce its final product: capital (K) and labor (L).
The isoquants have the usual smooth shape. K costs $1000 per day and L costs $200 per day. At the
current level of production, the marginal product of capital is additional 200 units per day and marginal
product of labor is 50 units per day. Is this firm producing at minimum cost? If it is minimizing cost,
explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses
to lower its costs.
4. (7 points) Suppose that a firm’s production function is given by:

Q=L+K

Calculate the firm’s long-run total, average, and marginal cost functions.
5. (10 points) Consider the production function:

Q = (Lα K β )2

Using Lagrangian multiplier method, find the lowest cost of producing Q units when the price of capital
is PK per unit and price of labor is PL per unit?

MSC 514 1 of 2 Dr. Priyanka Sharma


6. (5 points) The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between
designs takes one hour (and $18,000), and, after setting up, you can produce 1,000 units of a particular
design per hour (at a cost of $8,000). Does this production exhibit scale economies or scope economies?
7. (0 points) How much did you spend on working on this assignment? Please provide the best estimate.

MSC 514 2 of 2 Dr. Priyanka Sharma

You might also like