In: Economics
QUESTION 3
A firm's production function is Q = 2 KL, with MP L = 2K and MP K = 2L. The wage rate is $4 per hour, and the rental rate of capital is $5 per hour. If the firm wishes to produce 100 units of output in the long run, how many units of K and L should it employ?
a. |
K = 6.33; L = 7.91. |
|
b. |
K = 2; L = 2. |
|
c. |
K = 4; L = 5. |
|
d. |
K = 5.21; L = 6.45. |
QUESTION 4
If TC = Q3 - 20 Q2 + 220 Q, and MC = 3Q 2- 40Q + 220, then there are economies of scale until the level of output reaches:
a. |
5. |
|
b. |
0. |
|
c. |
10. |
|
d. |
15. |
QUESTION 6
Diseconomies of scale exist when:
a. | average total cost is minimized. | |
b. | marginal cost is increasing. | |
c. | average total cost is increasing. | |
d. | average total cost is decreasing. |
Question 3:
Q = 2 KL
MP L = 2K and MP K = 2L
Wage rate= W= 4
Rental rate of capital= r= 5
To find how much of K and L must employ:
MP L / MP K = W/r
2K/2L= 4/5
5K= 4L
L= (5/4)K Demand for L
If Q= 100:
100= 2KL
Use L=(5/4)K:
100= 2K(5/4)K
100 x (2/5)= K2
40 = K2
K= (40)1/2 = 6.33
Use K=6.33 in L=(5/4)K:
L= (5/4)6.33= 7.91
Option a is the correct answer.
----------------------------------------------------------------------------------------------------------------------------------------------------------
Economies of scale arises where average cost is decreasing and diseconomies of scale arises when average cost is increasing.
Average cost will decrease until a point at which it reaches lowest point. Lowest point of Average cost arises where:
Average cost = MC
Question 4:
TC = Q3 - 20 Q2 + 220 Q
MC = 3Q2 - 40Q + 220
Average cost= TC/Q= Q2 -20Q+220
To find out the point till which average cost is decreasing:
MC= Average cost
3Q2 - 40Q + 220 = Q2 -20Q+220
3Q2 - 40Q + 220 -Q2 +20Q-220=0
2Q2 - 20Q =0
2Q(Q-10)= 0
Q = 0 or 10
There are economies of scale until the level of output reaches 10.
Option C is the correct answer.
-------------------------------------------------------------------------------------------------------------------------------------------------------
Question 6:
Economies of scale arises where average cost is decreasing and diseconomies of scale arises when average cost is increasing.
Correct option is:
c. | average total cost is increasing. |