Scribd
Upload
23 views1 page

ECN104 Quiz3

ECONOMICS QUIZ

Uploaded by

mohammadnaim.jl181
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
23 views1 page

ECN104 Quiz3

ECONOMICS QUIZ

Uploaded by

mohammadnaim.jl181
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/ 1

ECN104

Take Home Quiz 3


Deadline: Wednesday, May 08, 2024

PROBLEM SETS

1. A firm that uses only labor and capital in production incurs a total cost of ₱20,000.00. The wage rate of labor
is 250 pesos and a unit of capital costs 500 pesos.
a. What is the isocost function of the firm? (3 points)
b. Graph the isocost of the firm by plotting units of capital on the y-axis and units of labor on the x-axis.
(2 points)
c. What is the relative price between the two inputs of production? (2 points)
d. If the price of a unit of labor becomes 500 pesos, what is the isocost function of the firm? (3 points)
e. Graph the new isocost line of the firm on the same set of axes in (b). (2 points)

2. The following is the production schedule of a certain firm. A unit of labor costs 500 pesos per day and the
rental price of capital is 2000 pesos per day. The firm employs 5 units of capital per day.
Labor Total Average Marginal
product product product
0 0
5 60
10 160
15 240
20 300
25 340

a. Fill in the column for average product and marginal product. (12 points)
a. Compute the fixed cost, variable cost, total cost, average total cost, average fixed cost, average variable
cost, and marginal cost. Create columns for each of these cost functions. (30 points)
b. Does the firm operate in the short run or long run? Why? (5 points)
c. What is the efficient scale of the firm? (2 points).

3. Jacob buys only milk and cookies.


a. In year 1, Jacob earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Jacob’s
budget constraint by drawing the quantity of milk on the x-axis and the quantity of cookies on the y-
axis. Label this as BL1.
b. What is the equation of his budget line?
c. What is the slope of the budget line? What is the MRS?
d. Now suppose that the price of milk becomes $4 per quart, what is the new equation of the budget
line?
e. Draw his new budget constraint line and label it as BL2.
f. What is the slope of the budget line now? What is the MRS?
g. Now suppose instead that all prices increase by 10 percent in year 2 and that Jacob’s salary increases
by 10 percent as well. Draw Jacob’s new budget constraint.
i. How would Jacob’s optimal combination of milk and cookies in year 2 compare to his optimal
combination in year 1?

You might also like