Question

Number 3 please

1. Diaw some Boquants for this production function (1.2) = min {x1 + x2, 2x2). (6 points) 2. Consider this production function f(x1,x2) = x, + x,. Does it exhibit decreasing, constant, or increasing returns to scale? (6 points) 3. A competitive firm has the production function y=Z, where y is the quantity of output and Z the amount of labor used. (a) Suppose the hourly wage rate for labor is w = $10 and the price of output is p = $40. How much labor will this firm use in order to maximize profit? What is the firm's output level? How much profit does it make? (10 points) b) Suppose the wage rate remains the same but the price of output has increased to $60 H does this affect the firm's use of labor, output level, and profit? (10 points) 4. AUS. electronics firm has the following production function y = Liki Let w be the price of L and the price of K. (@ In the U.S..w=r=20. What is the firm's minimum cost to produce y = 100? (12 points) (b) The firm just moved to Mexico, where w=$ and r=20. What is the firm's minimum costro producey 100(12 points)

Answer 1

Answer:

Question 3)

Given

y=L^(1/2)

MPL =dy/dL =0.5/L^(1/2)

A)

Given
P=$40

W=$10

for maximum profit

MPL*P=W

0.5/L^(1/2)*40=10

L^(0.5)=2

L=4

Number of labor L=4

Output y=L^(1/2)=4^(1/2)=2 units

Profit = P*y-L*W=40*2-4*10=$40

B)

Given
P=$60

W=$10

for maximum profit

MPL*P=W

0.5/L^(1/2)*60=10

L^(0.5)=3

L=9

Number of labor L=9

Output y=L^(1/2)=9^(1/2)=3 units

Profit = P*y-L*W=60*3-9*10=$90

From above calculation we find if the outpur price increased from $40 to $60 then Number of labor , Output level and Profit will also increase.