Micro 2
Problem-set 4 (Homework 2)
Problem 1 Suppose that you have a production function
f (x1 ; x2 ) = 3x1 + x2
a) If the factor prices are $3 for factor 1 and $3 for factor 2, how much
will it cost you to produce 80 units of output?
b) If you face factor prices (w1 ; w2 ), what will be your minimal cost of
producing y units of output?
Problem 2 Suppose that a new alloy is invented which uses copper and zinc
in …xed proportions where 1 unit of output requires 5 units of copper and 3
units of zinc for each unit of alloy produced. If no other inputs are needed,
the price of copper is $4, and the price of zinc is $2, what is the average cost
per unit when 3,000 units of the alloy are produced?
Problem 3 The production function is f (L; M ) = 4L0:5 M 0:5 , where L is the
number of units of labor and M is the number of machines used. If the cost
of labor is $100 per unit and the cost of machines is $16 per unit, then what
will be the total cost of producing 7 units of output?
Problem 4 The prices of inputs (x1 ; x2 ; x3 ; x4 ) are (4; 1; 3; 2):
a) If the production function is given by f (x1 ; x2 ) = minfx1 ; x2 g, what is
the minimum cost of producing one unit of output? What is the total
cost function, c(y)?
b) If the production function is given by f (x3 ; x4 ) = x3 + x4 , what is the
minimum cost of producing one unit of output? What is the total cost
function, c(y)?
c) If the production function is given by f (x1 ; x2 ; x3 ; x4 ) = minfx1 + x2 ;
x3 + x4 g, what is the minimum cost of producing one unit of output?
What is the total cost function, c(y)?
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d) If the production function is given by f (x1 ; x2 ; x3 ; x4 ) = minfx1 ; x2 g +
minfx3 ; x4 g, what is the minimum cost of producing one unit of output?
What is the total cost function, c(y)?
Problem 5 Suppose that in the short run a …rm, having production function
f (L; M ) = 4L0:5 M 0:5 , must use 4 machines. If the cost of labor is $10 per
unit and the cost of machines is $6 per unit, what is the short-run total cost
of producing 64 units of output?
Problem 6 Al’s production function is f (x1 ; x2 ) = (2x1 + x2 )0:5 , where x1
is the amount of plastic and x2 is the amount of wood used. If the cost of
plastic is $8 per unit and the cost of wood is $1 per unit, what is the cost of
producing 7 units of output?
Problem 7 Two …rms, Wickedly E¢ cient Widgets (WEW) and Wildly Nepo-
tistic Widgets (WNW), both produce widgets with the same production func-
tion y = K 0:5 L0:5 , where K is the input of capital and L is the input of
labor. Each company can hire labor at $1 per unit and capital at $1 per unit.
WEW produces 10 widgets per week, choosing its input combination so as to
produce these 10 widgets in the cheapest way possible. WNW also produces
10 widgets per week, but its dotty CEO requires it to use twice as much labor
as WEW uses. Given that it must use twice as many laborers as WEW does
and must produce the same output, how much larger are WNW’s total costs
than WEW’s?
Problem 8 A …rm has the following production function, f (x1 ; x2 ) = (x21 +
x22 )0:5 :
a) What are the …rm’s conditional input demand functions?
b) What is the …rm’s total cost function?
c) What is the …rm’s average cost function?
d) Does the …rm’s technology exhibit increasing, decreasing or constant
returns to scale?