03 Jun Question 1. A firm produces output according to a production f
Question
1. A firm produces output according to a production function: Q = F(K,L) = min {3K,6L}.
a. How much output is produced when K = 2 and L = 3?
b. If the wage rate is $50 per hour and the rental rate on capital is $35 per hour, what is the costminimizing input mix for producing 6 units of output?
Capital?
Labor?
2. If Starbuckss marketing department estimates the income elasticity of demand for its coffee to be 2.5, how will the prospect of an economic boom (expected to increase consumers incomes by 5 percent over the
next year) impact the quantity of coffee Starbucks expects to sell? (Round to 2 decimal places)
a. It will change by what percent?
3. The supply curve for product X is given by QXS = -440 + 20PX . Find the inverse supply curve.
a. P = ? + Q = ?
b. How much surplus do producers receive when Qx = 480? When Qx = 1,060?
4. Suppose the cross-price elasticity of demand between goods X and Y is 4. How much would the price of
good Y have to change in order to change the consumption of good X by 40 percent?
a. What Percent?
5. What is the value of a preferred stock that pays a perpetual dividend of $175 at the end of each year when the interest rate is 4 percent? Round Response to nearest dollar.
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