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Intermediate microeconomic theory

problem set

UNIVERSITY OF CALIFORNIA DAVIS

DEPARTMENT OF ECONOMICS

SPRING 2016

ECONOMICS 100: INTERMEDIATE MICROECONOMIC THEORY

PROF. ZELDER

PROBLEM SET 4

Due in class on Thursday May 26

where necessary or useful.

(1)

(2) The diagram below (next page) shows budget lines and an isoquant for a beer manufacturer.

It can hire labor L at a cost of w = 24 per unit, and hire capital K at a cost of r = 8 per unit. The

production function is:

q = (1.52)L0.6K0.4

q=1oo

100

0

L, Units of labor per hour

(a) Given the above information, what must be true, mathematically, in order for the cost

of producing q = 100 to be minimized?

(b) Does this mathematical condition hold at point x? Point y? Point z?

(c) If this mathematical condition doesn?t hold at some of these points, what is the firm

motivated to do at those points? Be specific.

(3)

(4)

(5)

Paper#9256911 | Written in 27-Jul-2016

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