Question

b. What is the average variable cost of producing 2 units of output What is the marginal cost of producing 2 units of output? c. The following table summarizes the short-run production function for your firm. Your product sells for $5 per unit, labor costs $5 per unit, and the rental price of capital is $25 per unit. Complete the following table, and answer the questions below; 2. 1 5 10 5 30 3 5 60 4 5 80 5 5 90 6 5 95 7 5 95 8 5 90 9 5 80 10 5 60 11 5 30 a. Which inputs are fixed inputs? Which are the variable inputs? b. How much are your fixed costs? c. What is the variable cost of producing 20 units of output? d. How many units of the variable input should be used to maximize profits? 3. Lucky Goldstar has a monopoly in the boat manufacturing industry. They have the following cost and demand conditions 50-.5P and C) 50 Q? a. Determine the profit-maximizing output and price 6) Graph this solution. c. Show your profits and the deadweight loss in your graph. 4. Sandy Inc a monopolist has 2 factories, 1 in Karbi and 1 in Bagnkok. Both factories produce the same product, Q1 is the quantity produced at factory 1, and Q2 is the quantity produced at factory 2. Sandy Inc faces the following inverse demand function: P 500 2Q, where Q Q1 + Q2. The cost functions for the two plants are C,-25 + 2Q12; C2-20 + Q22 a. To maximize profits, how much should you produce at factory 1 and factory 2? b. What is the price that maximizes profits? c. What are the maximum profits?

2 3 and 4

Answer 1

K	L	Q	MPK= ∆Q/∆K	APK = Q/K	APL= Q/L	VMPK= 5*MPK
0	5	0	-	-	_	-
1	5	10	10	10	2	50
2	5	30	20	15	10	100
3	5	60	30	20	12	150
4	5	80	20	20	16	100
5	5	90	10	18	18	50
6	5	95	5	15.83	19	25
7	5	95	0	13.57	19	0
8	5	90	-5	11.25	18	-25
9	5	80	-10	8.89	16	-50
10	5	60	-20	6	12	-100
11	5	30	-30	2.72	6	-150

VMPK = price of output * MPK

A) Labor is fixed input, bcoz level of Labor is fixed at 5

Capital is variable input

B)fixed costs = P_{​​​​​​L}* L = 5*5 = 25

C) for Q= 20, TVC = 2*25 = 50

D) at eqm, VMPK = rental rate of capital

So at K*= 6, VMPK = 25

K = 6

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