ECO 305 Lecture Notes - Lecture 6: Marginal Cost, Marginal Product
1) A companyās cost date has been partially entered in the table below. Fill in the missing
cells. (40 points)
2) A firm has two production process with the following marginal cost curves: MC1=0.4Q1
and MC2=2+0.2Q2. (30 points)
a) If it wants to produce 8 units of output, how much should it produce with each process?
MC1 = 0.4(8) = 3.2 MC2 = 2 + 0.2(8) = 3.6
Q1 = 8 and Q2 = 0.
b) What if it wants to produce 4 units of output?
MC1 = 0.4(4) = 1.6 MC2 = 2 + 0.2(4) = 2.8
Q1 = 4 and Q1 = 0.
3) A firm purchasing capital and labor in a competitive market at the prices of r=6 and w=1.
Currently, the marginal product of capital is 12 and marginal product of labor is 18. (30
points)
a) Is this firm minimizing its cost? Why?
MPk/Pk=2 and MPl/Pl=18 so the firm gets more output from labor than it does
capital.
b) What should this firm do?
It should buy more capital and less labor.
24
74
34
34
24
16
40
16
24
40
0
34
40
136
24
160
24
8
28
36
84
24
12
25
37
24
258
24
282
4
4.8
43
44
196
24
220
62
60
6
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