EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Question
Chapter 7.6, Problem 3MQ
To determine
To find the change in the diagram when there is an increase in capita beyond K*.
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Students have asked these similar questions
Q3. The law of diminishing returns applies only to businesses with very simply production.
Your Answer and Graph:
The following table shows estimates of Cobb-Douglas production function parameters for several industries.
Industry
Food and
beverages
Textiles
Furniture
Petroleum
Stone, clay, etc.
Primary metals
Food and beverages
Textiles
Petroleum
Stone, clay, etc.
Textiles
Primary metals
Stone, clay, etc.
Food and beverages
Which of the following industries appear to exhibit decreasing returns to scale? Check all that apply.
Capital
Elasticity
(B₁)
0.555
Source: John R. Moroney, "Cobb-Douglas Production Functions and Returns to Scale in U.S. Manufacturing Industry," Western Economic Journal 6, no. 1
(December 1967): Table 1, p. 46.
Stone, clay, etc.
0.121
Which industry comes closest to exhibiting constant returns to scale?
Furniture
0.205
Petroleum
0.308
0.632
0.371
Primary metals
Production Worker
Elasticity
(B₂)
0.439
0.549
0.802
0.546
0.032
0.077
Nonproduction Worker
Elasticity
(B3)
0.076
0.335
0.103
0.093
0.366
0.509
In which industry will a given percentage increase in production workers…
A company is producing a product using capital with the production function ƒ(K)
satisfying f'(K) > 0 and ƒ"(K) < 0 for all K . The profit function is given by π =
pf (K) -
) – K where p is the price of the product.
a) Find the expression for profit-maximizing K*. How does the K* change when
p increases? Briefly, up to 50 words, discuss the economic intuition.
b) Assume that f(K) = √K. Suppose that there is an uncertainty over the price
of the product. It is known that p is random with mean μ and variance o². A
company seeks to maximize the expected profit. Set up the maximization
problem. Find the expression for the optimal solution K*. How does the K*
change when μ increases? Briefly, up to 50 words, discuss the economic
intuition.
Chapter 7 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 7.1 - Prob. 1MQCh. 7.1 - Prob. 2MQCh. 7.1 - Prob. 1TTACh. 7.1 - Prob. 2TTACh. 7.2 - Prob. 1MQCh. 7.2 - Prob. 2MQCh. 7.2 - Prob. 1TTACh. 7.2 - Prob. 2TTACh. 7.3 - Prob. 1MQCh. 7.3 - Prob. 2MQ
Ch. 7.3 - Prob. 3MQCh. 7.3 - Prob. 1TTACh. 7.3 - Prob. 2TTACh. 7.5 - Prob. 1TTACh. 7.5 - Prob. 2TTACh. 7.6 - Prob. 1MQCh. 7.6 - Prob. 2MQCh. 7.6 - Prob. 3MQCh. 7.6 - Prob. 1.1MQCh. 7.6 - Prob. 2.1MQCh. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - Prob. 3RQCh. 7 - Prob. 4RQCh. 7 - Prob. 5RQCh. 7 - Prob. 6RQCh. 7 - Prob. 7RQCh. 7 - Prob. 8RQCh. 7 - Prob. 9RQCh. 7 - Prob. 10RQCh. 7 - Prob. 7.1PCh. 7 - Prob. 7.2PCh. 7 - Prob. 7.3PCh. 7 - Prob. 7.4PCh. 7 - Prob. 7.5PCh. 7 - Prob. 7.6PCh. 7 - Prob. 7.7PCh. 7 - Prob. 7.8PCh. 7 - Prob. 7.9PCh. 7 - Prob. 7.10P
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- Consider the statement: “Total output starts falling when diminishing returns occur”. Do you agree or disagree? Explain.arrow_forwardSugar Enterprises manufactures high speed personal computers as its main product line. Its short run production function is given by Q = 3600K - 4.5K² where Q is the number of computers produced in a week and K pertains to the number of units of capital. c.) Compute the marginal product of the 200th unit of capital. d.) How many computers can be produced by the firm in a week if there are 200 units of capital? e.) Compute the marginal product of the 300th unit of labor. f.) How many computers can be produced by the firm in a week if there are 300 units of labor?arrow_forwardQuestion 8: Profit maximization A firm's short-run production function is given with Q(K, L) = L0.2 K² . Capital is fixed with K = 3. The price of capital is r = 0.1 and the price of labour is w = 4. The price of the final output is p = 8. a) Do you think it is possible to depict this production function with an isoquant? Justify your answer by explaining the concept of an isoquant. b) Calculate the optimum quantity of labour the firm should use if it wants to maximize its profit. Also calculate the output produced and the corresponding profit.arrow_forward
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