Question 2. Your firm\' s research department has estimated your total revenues

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Question 2. Your firm' s research department has estimated your total revenues to be nd your total costs to be C(Q) 1,000+ 200. (Note that the 000Q-s0Q a marginal functionsa re MRIQ)-30,000-160Q and MC()-400) What level of Q maximizes net benefits? (b) What is the marginal benefit and marginal cost at this level of Q (c) What is the maximum level of net benefits? (d) What is another word for net benefits in this example? Question 3. You have been hired to replace the manager of a firm that used only two types of production inputs, skilled and unskilled labor, to produce output, The firm can hire as much unskilled labor as it wants at a wage of $10 per hour and can hire skilled workers at a wage of $50 per hour. After you look at the company books, you learn that the company has been using labor in amounts that imply a marginal product of unskilled labor of 50 and a marginal product of skilled labor of 100. Do you know why the firm hired you? Explain. Question 4. A consumer has a choice of spending $20,000 on a Honda or $14,000 on a Kia. She was observed buying a Kia during the weekend. Does this mean the consumer prefers the Kia to the Honda? Explain your answer. Question 5. In the setting of production and costs, what do the isoquant lines represent? Why are isoquants normally drawn with a convex shape? Question 6. Suppose the demand for good X is given by Qt = 10+4xPg+arPy+aMM Good Y is a good that is somehow related to good X, and M represents income (a) What is the law of demand? Is there anything you can say about any of the ax,ay,aM coefficients as a consequence of the law of demand? (b) Assume ay is positive. What can you say about how goods X and Y are related? Explain why that is the case. (c) What can you say about good X if ay is negative? After studying the demand function above and collecting some more data about your prod- uct, you come to the conclusion that ar-4, aM = 1, B-$2.50, and M-S80. According to the economists at your firm, the own price elasticity of demand is -25 when the price is $10. The supply function for this product is Qt-47k-32 Is demand elastie when Px $10? Inelastic? If you increase the price of your product do you expect an increase or a decrease to your total revenue? (d) (e) Show that the demand function for the parameters given above is t -100-2P To do so, it may be useful to:

Explanation / Answer

3)

Yes, the firm has hired me to bring a balance between the amount of skilled and unskilled labor.

For a balance and equilibrium between inputs,

Marginal product of skilled labor/ price of skilled labor = Marginal product of unskilled labor/ price of unskilled labor

Here,

Marginal product of skilled labor/ price of skilled labor = 100/50 = 2

Marginal product of unskilled labor/ price of unskilled labor = 50/10 = 5

Here, the equilibrium between skilled and unskilled worker is not achieved.

To achieve this equilibrium,

Marginal product of unskilled labor/10 = 100/50 = 2

Marginal product of unskilled labor = 10*2 = 20

So, to achieve the equilibrium, while keeping the marginal product of skilled labor at 100, unskilled labor should be hired unless the marginal product of unskilled labor becomes 20.

At this level, equilibrium condition of marginal product to price ration will be achieved.

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