Micro 2
Problem-set 5
Problem 1 The marginal cost curve of a …rm is M C = 6y. What is total
variable cost of producing 10 units?
Problem 2 A …rm has the short-run total cost function c(y) = 4y 2 + 100.
At what quantity of output is short-run average total cost minimized?
Problem 3 A …rm has the production function Q = X10:5 X2 . In the short
run it must use exactly 15 units of factor 2. The price of factor 1 is $75
per unit and the price of factor 2 is $2 per unit. Find the …rm’s short-run
marginal cost function.
Problem 4 Hildegard, an intelligent and charming Holstein cow, grazes in a
very large, mostly barren pasture with a few patches of lush grass. When she
…nds a new grassy area, the amount of grass she gets from it is equal to the
square root of the number of hours, h, that she spends grazing there. Finding
a new patch of grass on which to graze takes her 1 hour. Since Hildegard
does not have pockets, the currency in which her costs are measured is time.
a) What is the total cost to Hildegard of …nding a new plot of grass and
getting y units of grass from it?
b) Find an expression for her marginal costs and her average cost per
patch of grass as a function of the amount of grass she gets from each
patch.
c) How much time would she spend in each plot if she wanted to maximize
her food intake?
Problem 5 A competitive …rm has the short-run total cost function c(y) =
y 3 2y 2 + 5y + 6. Write down equations for:
a) The …rm’s average variable cost function
b) The …rm’s marginal cost function
c) At what level of output is average variable cost minimized?
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Problem 6 A …rm producing hockey sticks has a production function given
by p
q=2 K L
In the short run, the …rm’s amount of capital equipment is …xed at K = 100:
the rental rate for K is v = $1; and the wage rate for L is w = $4: Find
the …rm’s short-run total cost, short-run average total cost, and short-run
marginal cost functions.
Problem 7 Mary Magnolia wants to open a ‡ower shop, the Petal Pusher,
in a new mall. She has her choice of three di¤erent ‡oor sizes, 200 square
feet, 500 square feet, or 1,000 square feet. The monthly rent will be $1 a
square foot. Mary estimates that if she has F square feet of ‡oor space and
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sells y bouquets a month, her variable costs will be cv (y) = yF per month.
a) If she has 200 square feet of ‡oor space, write down her marginal cost
and average total cost functions. At what amount of output is average
total cost minimized? At this level of output, how much is average total
cost?
b) If she has 500 square feet of ‡oor space, write down her marginal cost
and average total cost functions. At what amount of output is average
total cost minimized? At this level of output, how much is average total
cost?
c) If she has 1,000 square feet of ‡oor space, write down her marginal cost
and average total cost functions. At what amount of output is average
total cost minimized? At this level of output, how much is average total
cost?
d) Use red ink to show Mary’s average total cost curve and her marginal
cost curve if she has 200 square feet of ‡oor space. Use blue ink to show
her average total cost curve and her marginal cost curve if she has 500
square feet of ‡oor space. Use black ink to show her average total cost
curve and her marginal cost curve if she has 1,000 square feet of ‡oor
space. Use green ink to show Mary’s long-run average total cost curve
and her long-run marginal cost curve.