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Assignment 4 3140 03

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5 views6 pages

Assignment 4 3140 03

Uploaded by

samliugrind
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
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Assignment 4

Econ 3140-03
Spring 2024

Full Name:
SLU ID:
Instructions:
1. Print the assignment.
2. Write your FULL name, ID, and date.
3. Write your answer in the space provided below each question. If you need more page to answer
the question, attach the additional page in that assignment.
4. You can work in a group of two and submit one assignment as a group.
5. Please staple the assignment. Assignments that are not stapled will be returned without
being graded.
6. Please return the assignment on April 23 (Tuesday) in class. No late submission will be accepted.

PART ONE. (5 points each, 50 points total) Please answer the following question in the space
provided with no more than a few sentences. Please note that without an explanation you will not
get full credit.

1. What is the value of marginal product of labor when the total product is maximized?

2. Suppose a firm has the following production function 𝑞 = 𝐾 2 𝐿2 . Calculate returns to scale. Does
it have increasing, decreasing, or constant returns to scale? Show your work.

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3. Suppose a firm has following total cost function: 𝑇𝐶 = 100 + 2𝑞 + 𝑞 2 . Find the fixed cost (FC),
total variable cost (TVC), average variable cost (AVC), average total cost (ATC), and marginal
cost (MC) for this firm.

4. Suppose a firm has following total cost function 𝑇𝐶 = 𝑞 2 − 10𝑞 + 100. Find the value of q for
which MC=ATC?

5. Suppose average total cost of 2 units is $40 and average total cost of 3 units is $35. What is the
marginal cost of producing third unit?

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6. Suppose rental rate (r) per unit of capital (K) is $100, and wage (W) per unit of labor (L) is $20.
Graph the isocost line for a firm that is willing to spend $2000 on capital (K) and Labor (L).

7. If marginal product of labor is increasing as more labor is hired, that implies average product of
labor is ________ (Only circle the correct answer)
a) Increasing.
b) Decreasing
c) Maximum
d) Any of the above.
e) None of above

8. If marginal cost is increasing as more quantity is produced, average cost is ___________(Only


circle the correct answer)
a) Increasing.
b) Decreasing
c) Minimum
d) Any of the above.
e) None of above

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9. Suppose a firm has following production function q=min[K,2L]. Rental rate (r) per unit of capital
(K) is $10 and wage (w) per unit of labor is $ 5. What would be minimum cost if this firm wants
to produce 100 units of output?

10. Suppose average variable cost (avc) of producing 5 units is $30, and average total cost (atc) of
producing 5 units is $50. What is the fixed cost for this firm?

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PART TWO. Answer the following problems in the space provided. Please show your work in an
organized way with clearly labeled graphs should if you choose to use any. Total 50 Points.
1 1
11. A firm faces following production function: 𝑞 = 𝐾 2 𝐿2 . Suppose the rental rate of capital r=40 and
wage rate for labor w=10. (25 Points)
a) For a given level of output, what should be the optimal ratio of capital to labor in order
to minimize cost?
b) What is the minimum cost of producing 200 units? At minimum cost for producing 200
units, how much capital and labor are needed?
c) What is the minimum cost of producing 300 units? At minimum cost for producing 300
units, how much capital and labor are needed?
d) Graphically show the long run-expansion path.
e) Does this production function exhibit increasing, decreasing, or constant returns to scale?

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12. Suppose total cost function of a firm is following 𝑇𝐶 = 𝑞 3 − 36𝑞 2 + 1800𝑞. (25 Points)
a) Calculate the quantity for which average total cost (ATC) of the firm is minimum. What
is the average total cost for this quantity?
b) Graph average total cost function (ATC) and marginal cost function on a same figure.
c) Calculate and explain the cost-output elasticity for following quantities:
i. q= 10
ii. q=18
iii. q=30

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