Question

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2. Short-run versus long-run costs and expenditures Aa Aa - The following isoquants depict the technologically efficient bundles of labor and capital for producing 100, 150, and 175 units of output (labeled IQ IQ - 100), IQ IQ - 150), and IQ IQ = 175), respectively). Suppose the firm is initially using the cost-minimizing bundle of labor and capital for producing 150 units of output, represented by point CAPITAL 10 10 - 1751 100 - 1501 Ti 01 - 4001 0 100 200 300 400 500 600 700 800 900 1000 LABOR Imagine that the firm wants to compare the short-run expenditures and long-run costs associated with producing 150 units with the costs associated with other levels of production. Given that the firm is currently committed to 150 units of capital, complete the following table by entering the total amount the firm would have to spend on capital and labor at each level of production in both the short run and the long run if the wage rate (w) is $10 and rental rate of capital (r) is $20. Short-Run Expenditures ($) (Capital is Long-Run Costs ($) (Capital is Flexible Quantity Produced 100 150 175

Answer 1

In short run capital is fixed at 150 7 To produce = 100 in short aan firm need so warts of Labor with fred amount of capital .. 150) To Wat ok 70 (50) +(20) (150) Tc - 3500 30 units of Lober To produce &= 150 in short dun from need with fixed om word of capital (1., 150). ۱ لبیا - اک IC (10 (3W) + (20) 050) Tc = Gow To wnits of To produce 8- 175 in shat aon from need with fixed amunt of capital (1.0, 150) haber Tc = wltok Jo.(10] (Jwt (20) (150) Tc = loone In lung dan at the tab caprtal in flexible, and cost minimizing in pust occurs tongency punt between Isucest line and I lignent Curve. To produce ca 100 in long rom and 150 mits of capital from need 50 units of capital Tea WLtok 1 (10) 150) + 27 (50) Tc = 2500

To produce & 150 is long run, from need 150 units of capital and 3w units of labor. Tc = whtok To = (16) (3W) + (20) (150) To = bus To produce (0-175 in lungoun, from need 225 wide of cabad and 450 units of labor Tc = eltok ICE & (c) (450) + (20) (225) tc - gove Drankty Produced Shard run eapn drux capital is fixed at 150) Long son cast ($). Capital is flexible 3500 Iso 2500 buvo 175 Ουυο Joona 9 JUD Please Rate my hate my work i