Chapter 5 (long run)

Chapter 5 (long run)

Chapter 5 (long run) 

Problem 1. In the following figure, the price of labor is $10 per unit.


a.	What is the price per unit of capital?
The price of capital= from the figure we can see that the slope is 1.667 so for each unit of capital we can get 1.667 units of labor. We know that with the firms budget it can buy 50 units of labor at a price of $10 per unit  therefore we know that capital rate is 1.667*10= $16.67  

b.	What is the marginal rate of technical substitution at point B?
  Marginal Rate of substitution =35/21= 1.667 
c.	What is the marginal rate of technical substitution at point A? Marginal rate of substitution is  using formula above is 50/30= 1.667 

d.	What is the equation for the isocost curve at point B?

•	The firm’s total cost equation is: 
C = wL + rK
 
e.	What is the equation for the isocost curve at point A?
f.	The firm’s total cost equation is: 
C = wL + rK

g.	How many units of capital should a firm use in order to produce 300 units of output at the least cost?

h.	What is the minimum cost of producing 100 units of output?

Suppose at Point A the optimal units of capital are 22. How many units of labor should a firm use in order to produce 300 units of output at the least cost