Question

In: Economics

TYPE OUT WORK PLEASE Alison lives in a small town where she plans to hire workers...

TYPE OUT WORK PLEASE

Alison lives in a small town where she plans to hire workers to help her make candy. Her production function for candy is q= 4LK^0.5

She begins producing with K = 4. The cost of capital is $50/unit. The wage depends on the amount of workers she employs. Specifically, w(L) = 10 + 2L.

1.Does Alison's production function exhibit diminishing marginal return to labor? Explain.

2.What kinds of returns to scale does Alison’s production function exhibit? Explain.

3.Derive Alison's short-run cost function.

4.Find Alison's Marginal Cost function. Explain what happens to Alison’s marginal cost as she increases the production of candy.

5.Does the relationship w/MPL = MC hold? Show this explicitly.

6.At what level of output does Alison’s average cost curve reach a minimum?

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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