Question

In: Economics

QUESTION 3 A firm's production function is Q = 2 KL, with MP L = 2K...

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.

Solutions

Expert Solution

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.

Related Solutions

2. Suppose that a firm's production function is given by Q = KL(MPK = L and...
2. Suppose that a firm's production function is given by Q = KL(MPK = L and MPL = K), where Q is the quantity of output, K is units of capital, and L is units of labor. The price per unit of labor and capital are $30 and $20, respectively. (a) How many units of labor and capital should the firm use if it wants to minimize the cost of producing 600 units of output? (b) Suppose that the firm...
3. Frisbees are produced according to the production function q = 2K+L where q =output of...
3. Frisbees are produced according to the production function q = 2K+L where q =output of frisbees per hour, K =capital input per hour, L =labor input per hour. a) If K = 10, how much L is needed to produce 100 frisbees per hour? b) If K = 25, how much L is needed to produce 100 frisbees per hour? c) Graph the q = 100 isoquant. Indicate the points on that isoquant deÖned in part a and part...
A firm has production function q = 100 L + KL− L^2 − K^2 The price...
A firm has production function q = 100 L + KL− L^2 − K^2 The price of the good is $1. The wage is $10, and the price of capital is $30. Assume that the firm is a price - taker in a perfectly competitive market. a. What will the firm’s profit maximizing choice of capital and labor be? b. Suppose that the firm’s capital is fixed in the short-run and wage rises to $20. What is the firm’s new...
Multiple Choice: 1. Suppose the firm's production process is given by Q = 2K^(1/2)*​L. If K=16...
Multiple Choice: 1. Suppose the firm's production process is given by Q = 2K^(1/2)*​L. If K=16 and L=8 what is the marginal productivity of capital? a) 1 b) 2 c) 5 d) 6 e) 8 2. Which of the following is not an assumption we make about perfectly competitive markets? a) Firms are price-takers b) Firms sell identical products c) Firms earn positive profit in the short-run but zero profit in the long-run d) Firms can freely enter or exit...
Multiple Choice: 1. Suppose the firm's production process is given by Q = 2K^(1/2)*​L. If K=16...
Multiple Choice: 1. Suppose the firm's production process is given by Q = 2K^(1/2)*​L. If K=16 and L=8 what is the marginal productivity of capital? a) 1 b) 2 c) 5 d) 6 e) 8 2. Which of the following is not an assumption we make about perfectly competitive markets? a) Firms are price-takers b) Firms sell identical products c) Firms earn positive profit in the short-run but zero profit in the long-run d) Firms can freely enter or exit...
A firm has a production function of Q = KL + L, where MPL = K...
A firm has a production function of Q = KL + L, where MPL = K + 1 and MPK = L. The wage rate (W) is $100 per worker and the rental (R) is $100 per unit of capital. a. In the short run, capital (K) is fixed at 4 and the firm produces 100 units of output. What is the firm's total cost? b. In the long run, what is the total cost of producing 100 units of...
For the following production functions, find the returns to scales. 1. F(K,L)=K^0.3L^0.7 2. F(K,L)=2K+L 3. F(K,L)=KL...
For the following production functions, find the returns to scales. 1. F(K,L)=K^0.3L^0.7 2. F(K,L)=2K+L 3. F(K,L)=KL 4. F(K,L)=K^0.2L^0.3 An explanation on how to do this, would be appreciated!
1. The production function for the shoe producing company is Q=KL 2, with the price of...
1. The production function for the shoe producing company is Q=KL 2, with the price of capital and labor fixed at $10 and $15 respectively. what combination of capital and labor minimizes the cost of producing 100 shoes?
The production function of a firm is given as Q = 50√KL. Here Q is the...
The production function of a firm is given as Q = 50√KL. Here Q is the output produced, K is the capital input and L is the labor input. Take the partial derivative of the long-term cost function according to the wage, interpret the function you find. Do the same for the rent cost of the capital (take derivative according to r). Interpret the function you find.
A plant’s production function is Q = L^1/3 K^2/3, where L is hours of labor and...
A plant’s production function is Q = L^1/3 K^2/3, where L is hours of labor and K is hours of capital. The price of labor services, w, is $40 per hour and of capital services, r, is $10 per hour. a. Derive the long-run expansion path. In words describe what the expansion path represents. b. In the short-run, the plant’s capital is fixed at K = 64. Labor, on the other hand, is variable. How much will it cost to...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT