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Econ 2000H Assignment Fall 2014




Question;ESSAY. Write your answer on a separate sheet of paper.1) 20 PointsApu's Squishy production function is y(K, L) = K L where K is the number of squishy machines and L is thenumber of labor hours he employs. Does this production function exhibit increasing, decreasing or constantreturns to scale? (5 Points) At the moment, Apu uses 2 squishy machines and 4 labor hours. Suppose that Apucan use any amount of either input without affecting the market costs of the inputs. If Apu increased his use oflabor hours and squishy machines by 100%, how much would his production increase? (5 Points) Increasingthe use of both inputs by 100% will result in Apu's costs increasing by exactly 100%. If Apu increases his use ofall inputs by 100%, what will increase more his production or his costs? (5 Points) Given that Apu can sell asmany squishies as he produces for $1.00, do his profits go up or down when he increases his input use by100%?(5 Points)2) (20 Points)May enjoys spending her free time with her friends at the mall and solving problems from her microeconomics3 P 1/4text. She has 16 hours per week of free time. Diagram May's time constraint. (5 Points) If MUF =and4 F1 F 3/4MUP =where F is her time spent with friends at the mall and P is her time spent working problems,4 Phow much time should May spend at each activity? (15 Points)3) (20 Points)The demand curves for steak, eggs, and hot dogs are given in the table below. The current price of steak is $5.The price of eggs is $2.50, and the price of hot dogs is $0.75. Fill in the remaining columns of the table using thisinformation. Indicate which goods are substitutes and which goods are complements.GoodDemand EquationSteak1DS = 500 - 2PS P + PH10 EEggSteak PriceElasticity ofDemand1DE = 75 - 3PE - PS +P10 HHotdogDH = 300 -11P + PS +P2 H10 E1Egg PriceElasticity ofDemandHotdog PriceElasticity ofDemand


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