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Chapter

Intermediate Micro Practice Set 1

2 Pages
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Department
Economics
Course Code
ECON 2350
Professor
all

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Intermediate Microeconomics. Problem Set #1: Production Functions 1. Suppose that the Total Product of Labour function of a firm is q = 600L – L where q represents units of Output/Day and L represents the numbers of workers per day. a) What is the Marginal Product of Labour function? b) What is the Average Product of Labour function? c) What is the Real Demand for Labour function? d) What is the Nominal Demand for Labour function if the price of the commodity is $0.80? e) What is the optimal quantity of workers if the wage rate is $240/day? f) What is the firm’s operating profit (profit on labour in this instance) at the optimal quantity of Labour? 2 3 2. Suppose that the Total Product of Labour function of a firm is q = 12L – 0.1L where q represents units of Output/Day and L represents the numbers of workers per day. a) What is the Marginal Product of Labour function? b) What is the Average Product of Labour function? c) What is the Real Demand for Labour function? d) What is the Nominal Demand for Labour function if the price of the commodity is $1.00? e) What is the optimal quantity of workers if the wage rate is $210/day? f) What is the firm’s operating profit (profit on labour in this instance) at the optimal quantity of Labour? 1/21/2 3. Suppose that the production function for a commodity is Q = 20K L . a) What is the isoquant function for this commodity? b) What is the slope of this isoquant in terms of Q and L? c) What is the slope of this isoquant in terms of K and L? d) What is the Marginal Product of Labour? e) What is the Marginal Product of Capital? f) What is the slope of the isoquant using the Marginal Products? 0.50.5 4. Supppose that the production function for Copper is Q = 4K L (where Q is in kilograms and K and L are in units), the competitive wage rate is $9 and the competitive Return on Capital is $4. a) What is the Marginal Product of Labour? b) What is the Isoquant function for this production function?) c) What is the Marginal Rate of Technical Substitution of Capital for Labour for this production function? Express this in terms of K and L. d) Use a technique other than the one in c) to derive the MRTS. Answers 1.a) MP = dTP/dq = 600 – 2L b) AP = TP/q = 600 – L c) Demand for Labour = MP below max AP. (This last part isn’t relevant for a quadratic Total Product function since it gives linear MP and AP with the same output/unit intercept) Demand
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