Econ Class

In: Business and Management

Submitted By tz212121
Words 492
Pages 2
ECON 300
Assignment #3

1. Suppose that in a chemical plant: . Q =AL1/3 K1/2

Where Q is the output rate, L is the labor input, and K is the rate of capital input.
Statistical analysis indicates that α =1/3 and β =1/2, A=10

a) The owner of the plant claims that there is increasing return to scale, Is he right? b) If the cost of labor W =$ 6,the cost of capital r is =$ 2, and the price of output is $20/unit. Find the least cost combination of L and K and the level of output at which profit is maximized. What is the total cost at the optimum level of Q?

2. 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 defined in part a and part b. What is the RTS along this isoquant? Explain why theM RTS is the same at every point on the isoquant. d) Graph Q = 50 and Q = 200 isoquants for this production function also describe the shape of the entire isoquant map. e) Suppose technical progress resulted in the production function for Frisbees becoming Q= 3K + 1.5L
Answer part a through part d for this new production function and discuss how it compares to the precious case.

3. A firm has the production function Q = 5LK. Where Q = output, L = amount of labor, and K = the amount of capital. a) Suppose the price of labor W = $1 per unit and the price of capital r= $2 per unit. The firm’s vice president hires you to figure out what combination of inputs the firm should use to produce 20 units of output. What advice will you give him? b) Suppose W increased to $2 per unit. What effects will this have on the…...

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