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Econ 2200 Assignment #4 Fall 2013




Question;Q1. A firms production process uses labour, L, and capital, K, to produce an output, Q according to the function Q = 25KL. Let labour be fixed at level L L. What is the cost minimizing level of capital that the firm must use to produce a target level of output, Q Q? [6 marks]Q2. Given a high elasticity of substitution between capital and labour, what does this imply aboutthe elasticity of demand for labour? [2 marks]Q3. Suppose that a firms production function of output Q is a function of only two inputs, labour(L) and capital (K) and can be written Q = 5LK. Letting the wage rate for labour be w and therental rate of capital be r, a. Dervie the equation for the firms demand for labour. [6 marks]b. Let the wage rate for labour be w = 10 and the rental rate of capital be r= 10. If the firmproduces 1000 units of output, how many units of labour will it use? [4 marks]Q4. A firms production function is given by Q K 2 L. The wage rate is w $10 and the rentalrate of capital is r $20.a. What is the most efficient combination of labour and capital (L, K) if the firms budget is$1,200? [4 marks]b. How much output can the firm produce? [4 marks]Q5. The production function for a good is given by:Q = 2 min{L, K}a. Draw an isoquant for Q =20 and Q = 40 [4 marks]b. If the wage rate, w, is $20 per hour and the rental cost of capital, r, is $40 per hour and the firms total cost of producing 40 units? [2 marks]


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