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Tutorial Workbook Solutions.pdf

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Hannah Holmes

1ECON 2G032X03 TUTORIAL EXCERCISES Professor H HolmesMaterial prepared by H Holmes and Robert DAurelio MA2TUTORIAL 1 Chapter 6Key Concepts and Equations Production function in general isyFz z 12Fixedproportions production isyminz amt of z neededz amt of z needed 1122uvCobbDouglas variableproportions production function isyAzz12Profit maximizationcost minimization Long run cost minimization problem ismin wz wz 11 22z z1 2 st yFz z12Ifz is fixed at zthe total product fn isTP z Fzz 22112MPzslope of TP z Fzz since TP is a fn only of z its not a partial derivative per se 11112z1Diminishing MP sets in where MP is maximized whered MPd z 0 1AP z TP z 11z1For one variable input the cost minimization problem is min wz 11z1 st yTP z 1 SMC yVCyd VCy dyAll cost functions are only functions of y w and w There are no zs in the cost fn 12 3Tutorial 1 Problems 21 A firm has a total cost functionTCy10y5y40 a What is the firms marginal cost of producing 100 units of outputTCyMCyy205MCyy 100201005MC1002005MCb What is the average variable cost of producing 100 units of output2105VCyyy105AVCyy 100101005AVC1001005AVCc At what level of output is average total cost at a minimum ATC0y401002y4010 2y24y2y2 To make the perfect Singapore Sling a fancy cocktail requires 1 ozginG2 oz ice I4 oz orange juiceO1 oz lime juiceL12 ozgrenadineD
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