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Tutorial 11

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8 views7 pages

Tutorial 11

Uploaded by

iliyantharwani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Tutorial 11

week-11 (sessions 21 & 22)


Econ-211 (Fall 2024)

Chapter-12 (Production with Multiple Inputs)


Chapter-13 (Production Decisions in the Short and Long Run)
Question-1
Consider again the production technology represented by the production function

a) Derive conditional input demand functions for labor & capital.

b) Given some initial prices, verify that all cost minimizing bundles lie on the same
ray from the origin in the isoquant graph.

c) Derive the marginal and average cost curves. Are these curves upward or
downward sloping?
d) Derive the output supply function.

e) Given output price is $5, and labor and capital costs are $20/hr and $10/hr
respectively, find the cost minimizing input bundle firm will choose to produce
1280 units of output.
d) Derive the output supply function.

e) Given output price is $5, and labor and capital costs are $20/hr and $10/hr
respectively, find the cost minimizing input bundle firm will choose to produce
1280 units of output.
Plug the input prices and output units in condition factor demands to get incurring a long-run
cost of
Question-2
Consider again the production technology Suppose producer faces the input prices and
capital is fixed at

a) Write the long-run cost function (derived in previous question) at these input
prices.
b) What is the firm’s short-run cost function?
c) What is the firm’s short-run expenditure function?
d) The (short-run) average expenditure curve will be U-shaped even though the short
run average cost curve is not. True/False?
Question-2
Consider again the production technology Suppose producer faces the input prices and
capital is fixed at

a) Write the long-run cost function (derived in previous question) at these input
prices.
b) What is the firm’s short-run cost function?
c) What is the firm’s short-run expenditure function?
d) The (short-run) average expenditure curve will be U-shaped even though the short
run average cost curve is not. True/False?
(Holds true as long as the short-run production function has decreasing returns to
scale!)
Question-3
A firm in a perfectly competitive market has a cost function:

a) What should the firm choose to maximize its profit if the market price is
b) If market price
c) If market price will the firm shutdown in the short-run?
d) At this price, will the firm exit or stay in the industry in the long-run? What is the
exit price?
e) What is the short-run supply function of this firm?

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