05 Jun Question Gulf University for Science & Technology
Question
Gulf University for Science & Technology Dr. Fida Karam
Department of Economics & Finance Room N1-115
ECON 503:Economics for Managers PHONE: 2530-7351
[email protected]
Problem Set IV: Chapter 5(2)
Problem 1:
Ed’s construction company has the following short-run cost function: q3 – 10q2 + 36q.
a. What level of output will minimize the average cost? What is the AC at this point?
b. Does the production process indicate diminishing marginal returns? How can you tell?
Problem 2:
Evren wants to go into the donut business. For $500 per month he can rent a bakery complete with all the equipment he needs to make a dozen different kinds of donuts (K=l, r =500). He must pay unionized donut bakers a monthly salary of $400 each. He projects his monthly production function to be
Q = 5KL
where Q is tons of donuts.
a. With the current level of capital, what is the marginal product of labor? Is the marginal product diminishing? Explain.
b. If Evren wishes to make 25 tons of donuts, how many bakers are required given the current level of capital? How much will it cost to produce this (total cost)?
c. Derive Evren’s short-run cost function with K=1.
d. Derive the marginal cost curve from your answer to c. and show the relationship between the marginal cost and marginal product of labor.
Problem 3:
What are the functions for MC and AC if TC = 100q + 100q2? Are the returns to scale increasing, decreasing, or constant?
.
Problem 4:
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