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In: Economics

A firm produces output using capital (K) and labor (L). Capital and labor are perfect complements...

  1. A firm produces output using capital (K) and labor (L). Capital and labor are perfect complements and 1 unit of capital is used with 2 units of labor to produce 1 unit of output. Draw an example of an isoquant. If wages and rent are $2 and $3, respectively, what is the Average Total Cost?

  2. A firm has a production function given by Q=4KL where K, L and Q denote capital, labor, and output, respectively. The firm wants to produce an output of 16 units at a minimum cost. Show the solution graphically assuming that wages and rent are $1 and $2, respectively.

  3. Consider a perfectly competitive firm in the short run. It has Total Cost and Marginal Cost functions given by TC(Q)=10+2Q2 and MC(Q)=4Q, respectively. The firm faces a price of P=$20. Determine the output that the firm will produce and the profit. Show the solution graphically.

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