Download The following table provides partial information on total

TASK 4
FOR PRESENTATION
1. A film has access to two production processes with the following marginal cost curves: MC 1 = 0.4Q
and MC2 = 2 + 0.2Q.
a. If it wants to produce 8 units output, how much should it produce with each process?
b. If it wants to produce 4 units of output?
2. A firm employs a production function Q= F(K, L) for which only two values of K are possible, K 1 and
K2 . Its ATC curve when K= K1 is given by ATC1 = Q2- 4Q + 6. The corresponding curve for K = K2
is ATC2 = Q2 – 8Q + 18. What is this firm’s LAC curve?
3. Suppose capital and labour are perfect complements in a one-to-one ratio. That is, suppose that Q =
min (L, K). Currently, the wage is w = 5 and the rental rate is r = 10. What is the minimum cost and
method of producing Q = 20 units of output? Suppose the wage rises to w’ = 20. If we keep total cost
the same, what level of output can now be produced and what method of production (input mix) is
used?
4. Suppose the same firm’s cost function is C(q) = 4q2 + 16.
a. Find variable cost, fixed cost, average cost, average variable cost, and average fixed cost. (Hint:
Marginal cost is given by MC = 8q).
b. Show AC, MC, AVC on a graph.
c. Find the output that maximizes AC.
d. At what range of prices will the firm produce a positive output.
e. At what range of prices will the firm earn a negative profit?
f. At what range of prices will the firm earn a positive profit?
5. Suppose you are given the following information about a particular industry:
QD = 6500 – 100P
Market demand
S
Q = 1200P
Market supply
C(q) = 722 + q2/200
Firm total cost function
MC(q) = 2q/200
Firm marginal cost function
Assume that all firms are identical and that the market is characterized by the pure competition.
a. Find the equilibrium price, the equilibrium quantity, the output supplied by the firm, and the profit
of each firm.
b. Would you expect to see entry into or exit from the industry in the long run? Explain. What effect
will entry or exit have on market equilibrium?
c. What is the lowest price at which each firm would sell its output in the long run? Is profit positive,
negative, or zero at this price? Explain.
d. What is the lowest price at which each firm would sell its output in the short run? Is profit
positive, negative, or zero at this price? Explain.
* Note that questions 4 and 5 are taken from questions 7 and 10 in your Textbook at page 307.