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- With the help of a well-illustrated diagrams, show and clearly explain:
How a firm maximizes profits given cost constraints i.e
Max X= f(L,K),
Subject to Ĉ=wL+rK
Step by step
Solved in 5 steps with 2 images
- Using the Diagram above, answer the following questions: b). Suppose this firm produces 15 units of output. What is the variable cost of producing this level of output? What is the firm’s AVC of production when it produces 15 units of output. Explain your answer fully.Is this graph a valid set of cost curves? True/FalseSuppose a firm faces a cost function of C = 8 + 4q + q^2, so that its marginal cost is MC=4 + 2q. a) What is the firm's fixed cost. F? b) What is the formula for the firm's variable cost (VC), Average Cost (AC), and Average Variable Cost (AVC)? c) On a diagram, draw the AC, AVC, and MC curves.
- We expect the marginal cost to increase as this firm produces more computers. But when the firm shifts from producing 1 to 2 computers, marginal cost falls. What might explain this?production function: ƒ (k, 1) = 9 function. k Derive the firm's costWe expect the marginal cost to increase as this firm produces more computers. But when the firm shifts from producing 1 to 2 computers, marginal cost falls. Why?
- VI. | Suppose the cost of producing milkshakes is C = Q³/3-30² +150 +50. What is the equation for marginal cost? At what point is marginal cost minimized?a) How do you derive the marginal cost (MC) curve of a firm?b) How are average variable cost (AVC) and marginal cost (MC) curvesrelated? Explain.1) A firm uses labor and machines to produce output according to the production function f(L,M) = 4L 1/2M1/2 , where L is the number of units of labor used and M is the number of machines. The cost of labor is $40 per unit and the cost of using a machine is $10. a) On a graph, draw an isocost line for this firm, showing com- binations of machines and labor that cost $400 and another isocost line showing combinations that cost $200. What is the slope of these isocost lines? b) Suppose that the firm wants to produce its output in the cheapest possible way. Find the number of machines it would use per worker. (Hint: The firm will produce at a point where the slope of the production isoquant equals the slope of the isocost line.) c) On the graph, sketch the production isoquant corresponding to an output of 40. Calculate the amount of labor and the number of machines that are used to produce 40 units of output in the cheapest possible way, given the above factor prices. Calculate the…
- Discuss the relationship, with the use of a graphical illustration(prefferably visual), of the firm's total product curve and its marginal cost curve. Hint: Law of diminishing marginal returns.Problem 1 Hobbies Co is a firm that produces model trains in a perfectly competitive market. The production of each model train requires millilitres of paint (P), and grams of wood (W). Their production function is given by f(P,W)= min{6√P, 3W – 12}. (a) Draw the isoquant corresponding to q = 48 trains in a clearly labelled diagram where P is the horizontal axis and W is the vertical axis. Label two distinct input bundles (P, W) in the diagram which give q = 48. (b) Compute the marginal products of each input. (c) Does this production function exhibit constant returns to scale? Using the marginal products you have computed in the previous part, explain your answer in no more than 25 words. (d) Suppose that HobbiesCo wants to produce q trains when the price of paint is $72/mL and the price of wood is $18/g. Show that the minimum cost of such an undertaking is c(q) = 2q² +6q+72. (e) Suppose that the market price is p, and Hobbies Co will produce q units of trains. Using the cost function…Draw an example of the Total Fixed Cost, Total Variable Cost, and Total Cost of a company whose marginal cost is non-linear and increasing for all Q>0. (Please have the quantity (Q) on the horizontal axis and $ on the vertical axis as we had in class. You do not need to provide the functional form or numbers, just the graphs with the appropriate shape.)
