Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 7.A, Problem 1TY
To determine
Budget line and the indifference curve of the firm.
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Suppose the wage rate for labor is $20 an hour and the rental rate for capital is $50 per hour. Based on this information, please answer the questions appearing below the graph. a. Draw the iso-cost line associated with an hourly budget of $1,000. b. What is the least-cost level of capital and labor this business should utilize when packaging 1,000 cases of fruit juice? How did you arrive at this answer? C. How much does it cost this business to package 1,000 cases of fruit juice? If the firm can sell the juice for $50 per case, what is its accounting profit?
4. Variouss measures of cost
Douglas Fur is a small manufacturer of fake-fur boots in San Diego. The following table shows the company's total cost of production at various
production quantities.
Fill in the remaining cells of the following table.
Quantity
Total Cost
Marginal Cost
(Dollars)
Fixed Cost
Variable Cost
Average Variable Cost
Average Total Cost
(Pairs)
(Dollars)
(Dollars)
(Dollars)
(Dollars per pair)
(Dollars per pair)
120
1
200
2
240
3
285
4
340
425
6
540
On the following graph, plot Douglas Fur's average total cost (ATC) curve using the green points (triangle symbol). Next, plot its average variable cost
(AVC) curve using the purple points (diamond symbol). Finally, plot its marginal cost (MC) curve using the orange points (square symbol). (Hint: For
ATC and AVC, plot the points on the integer; for example, the ATC of producing one pair of boots is $200, so you should start your ATC curve by
placing a green point at (1, 200). For MC, plot the points between the integers:…
Suppose that the production function for Hannah and Sam's home remodeling business is
Q=f(L,K)
Q=1040.2K0.3
Assume the wage rate is $8,000 per week and the cost of renting a unit of capital is $2,000 per week.
a. What is the least-cost input combination for remodeling 100 square feet each week?
Instructions: Round your answers to 2 decimal places.
units of labor and
units of capital.
b. What is the total cost?
Instructions: Round your answer to 2 decimal places.
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