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Intermediate Microeconomics Problem Set 5

The document outlines Problem Set 5 for an Intermediate Microeconomics course, due on April 15. It includes three problems focusing on total cost functions, production functions, and profit maximization, requiring students to derive various economic expressions and graph cost functions. The problems involve calculations related to fixed costs, variable costs, and the impact of changes in marginal cost on pricing.

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Bassam Khalil
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5 views1 page

Intermediate Microeconomics Problem Set 5

The document outlines Problem Set 5 for an Intermediate Microeconomics course, due on April 15. It includes three problems focusing on total cost functions, production functions, and profit maximization, requiring students to derive various economic expressions and graph cost functions. The problems involve calculations related to fixed costs, variable costs, and the impact of changes in marginal cost on pricing.

Uploaded by

Bassam Khalil
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

ECONOMICS 217: INTERMEDIATE MICROECONOMICS

PROBLEM SET 5
DUE ON MOODLE ON MONDAY APRIL 15 AT 10:00AM

Problem 1

For each of the total cost functions, write the expression for the total fixed cost,
average variable cost, and marginal cost.
a. TC(Q)=10Q
b. TC(Q)=160+10Q
c. TC(Q)=10Q2
d. TC(Q)=160+10Q1/2

Problem 2
A firm uses labor (L) and capital (K) to produce output and has the following
production function: F(L, K) = 10L1/2K1/2
The wage for a worker is $25 and the rental rate of capital is $100. In the short run,
the firm’s workers have unbreakable contracts so the firm cannot hire or fire
workers but it can change the amount of capital it uses. In the long run, both the
number of workers and the amount of capital can be adjusted. Currently the firm
employs 100 workers.

a. Suppose that the firm wants to produce y units of output in the short run. Derive
an expression for the amount of capital the firm will need to use as a function of
the desired level of output (K(y)).
b. Based on your answer to part (a), derive the costs for the firm as a function of
output in the short run (STC(y)). Graph this cost function on a graph with
output on the horizontal axis and costs on the vertical axis.
c. Derive expressions for the number of workers hired by the firm (L(y)) and the
amount of capital used by the firm (K(y)) in the long run if the firm wants to
produce y units of output and minimize costs.
d. Based on your answer to part (c), derive the long run cost function for the firm
(TC(y)). Graph this function on the same graph as part (b). Find the value of
output at the point where the two cost curves intersect. Based on your answer to
part (c), how many workers will the firm hire at this level of output?

Problem 3
A firm faces the following demand curve: P = 100 - 0.01Q where Q is weekly
production and P is price, measured in cents per unit. The firm’s cost function is
given by C = 50Q + 30,000. Assuming the firm maximizes profits:
a. What is the level of production, price, and total profit per week?
b. What is the level of the markup?
c. If the firm’s marginal cost increases by 10%, what happens to the price of the
good?

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