1. Suppose pigs ( P ) can be fed corn-based feed ( C ) or soybean-based feed ( S

Question

1.

Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S.  If the price of corn feed is $2 and the price of soybean feed is $5, what is the cost-minimizing feed combination producing P = 100?

2.

Suppose a cost function is TC = Aq3 + bq2 + cq + d.  Then the average variable cost is

3.

Suppose a production function is q = K1/2L1/3 and in the short run capital (K) is fixed at 100.  If the wage is $10 and the rental rate on capital is $20, the short run marginal cost is

4.

Suppose MPL = 20 and MPK = 40 and the rental rate on capital is $10.  If the level of production is currently efficient, the wage rate must be

5.

The firm's expansion path records

a. C = 50 b. S = 20 c. C = 25, S = 10 d. All points on the P = 100 isoquant, including those listed in a-c would cost the same.

2.

Suppose a cost function is TC = Aq3 + bq2 + cq + d.  Then the average variable cost is

a. Aq2 + bq + c b. Aq2 + bq + cq +d/q c. Aq3 + bq2 + cq d. d

3.

Suppose a production function is q = K1/2L1/3 and in the short run capital (K) is fixed at 100.  If the wage is $10 and the rental rate on capital is $20, the short run marginal cost is

a. q3 b. c. 2q3 d. 1000 + q3

4.

Suppose MPL = 20 and MPK = 40 and the rental rate on capital is $10.  If the level of production is currently efficient, the wage rate must be

a. $40 b. $10 c. $20 d. $5

5.

The firm's expansion path records

a. cost-minimizing input choices for all possible output levels for a fixed set of input prices. b. cost-minimizing input choices for profit-maximizing output levels. c. profit-maximizing output choices for every possible price. d. cost-minimizing input choices for all possible output levels for when input prices expand along with production.

Explanation / Answer

Answer

1) The Correct answer is (d) All points on the P = 100 isoquant, including those listed in a-c would cost the same.

For Perfect substitute Case, Whenever Slope of Isoquant equals Isocost then All the Point on the Isoquant are efficient and cost equally. This is because We can perfectly Substitute one good for other. Hence whatever cost less to produce the good we use that input. When slope is equal then both are equally costly and also all the Combinations on the isoquants cost equally. this In this case slope of Isoquant = Slope of Isocost = -2/5.

Hence When P = 100, C = 50, S = 20 and C = 25, S = 10 will cost $100.

2) The correct answer is (a). Aq2 + bq + c

TC = Aq3 + bq2 + cq + d Hence, TVC = Aq3 + bq2 + cq

Average Variable Cost = TVC/q = Aq2 + bq + c

Hence the correct answer is (a). Aq2 + bq + c

3) The correct answer is (b) 3q2/100

q = K^(1/2)L^(1/3)

=> L^(1/3) = q/10 => L = (q/10)^3

TC(Q) = 20*10 + 10*(q/10)^3

MC(Q) = d(TC)/dQ = 3*(q/10)^2 = 3q2/100.

Hence The correct answer is (b) 3q2/100

4)

The correct answer is (d) $5

Level Of production is efficient if MPL/w = MPK/r. Here w is wage rate and r is rent

=> 20/w = 40/10

=> wage rate = w = $5

Hence The correct answer is (d) $5

5) The correct ans wer is (a) cost-minimizing input choices for all possible output levels for a fixed set of input prices.

Firm Expansion path is a path or locus of all input combination with all q(output levels) increases with input prices held constant.

Hence The correct ans wer is (a) cost-minimizing input choices for all possible output levels for a fixed set of input prices.

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