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Short Run and Long Run Cost Function We consider the same production function is X=F(K,L)=3K^1/3L^1/3. Define the wage cost as w and the rental rate of capital as r. The price of the product is defined as p. 1. Consider a short run case where the amount of capital is fixed at K = K ¯ . In this case, the short run firm cost is wL + rK ¯. The firm produces output x using K ¯ and L. Calculate the demand for labor input L for output x in the short run. 2. The cost function explains the relationship between total cost C and the firm output x. Solve for the short run cost function (where K ¯ is fixed) by substituting L into the firm cost expression. 1 3. From the short run cost function solved in the previous question, we consider the short run firm profit maximization problem: given market price of production p and factor prices {w, r}, the firm maximizes its profit by choosing the output of production x. Solving this short-run profit maximization problem, and derive the short run supply curve. 4. In the long run, the usage of capital can be changed as well. Thus, the long run firm cost is wL + rK. For a firm producing output x with K and L, calculate the new cost-minimizing usage of inputs K∗ and L∗. 5. Solve for the long run cost function (where K is flexible) by substituting K and L in question 4 into the long-run cost expression. 6. Solve the firm profit maximization problem in the long run and derive the long run supply curve.
In a perfectly competitive market the market demand for a good A is P=50-Q and the market supply is p=5+0.5Q. find the equilibrium price, quantity and the total welfare in this market. a unit tax=$15/unit is imposed on good A. calculate the amount of..
If price controls are initiated, we would expect that
Performing an internal environmental analysis helps a company identify the strengths to build on and the weaknesses to overcome when formulating strategies. Included in this strategy is an assessment of the functional areas of the business.
Unions in the United States are at an all-time low and continuing to decline. Why? What has changed in our working and legal environment that has resulted in this situation?
Lowering the interest rate will
In class we discussed how companies go about making decisions related to important purchases. One method of making an informed purchasing decision is total value sometimes call life-cycle costing. You are a sales person for Sherwin-Williams and sell ..
Assume that the wholesale skim milk market is perfectly competitive. Suppose demand is described by P=5.10-0.80Q and supply is described by P=1.90+0.20Q. If there are no price controls, what would be the equilibrium quantity?
Given today’s fierce global competitive environment, a decrease in mandatory payments by employer to health care companies and providers for overhead health care benefits for workers would lead to an increase in what?
Currently, the expectation is that the Federal Reserve will try to increase interest rates sometime later this year, while the European Central Bank will try to maintain low interest rates. What is the corresponding expectation of the future trajecto..
where E represents annual health care expenditures per capita and Y stands for income per capita. Using the slope of the health expenditure function, predict the change in per capita health care expenditures that would result from a $1,000 increase i..
The presence of pre-school children often complicates women’s labor supply decisions by forcing them to consider the costs of child care. In this problem, you are asked to consider the labor supply decision of a single mother with one child of pre-sc..
Indicate whether each of the following involves an upward or downward shift in the long run average cost curve or instead, involves a leftward or rightward movement along a given curve. Also indicate whether each will have an increasing, decreasing, ..
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