Need to double check answers. If you could explain all steps I would be apprecia

Question

Need to double check answers. If you could explain all steps I would be appreciative.

(1) Qy = 120 – 2Py + Pz - 0.7 M

a. What type of good is y?

b. How are goods y and z related?

C. Give an example of goods y and z?

c. Is this a demand or supply equation?

(2) Linear production function:

Q = 10 +2L+4K

What’s 4?

What is MRTSL,K = MPL/MPK

If Q = 10, what do you call this equation?

If this equation is for a company, what type of company is this?

(3) Suppose the production function is given by

Q = 10L1/4 K3/4

Price of output is $2 and the wage rate is $100. In the short run, K=2 machines.

Plug K=2 in the production function. What do you call this functions?

Calculate optimal L* in the short run.

Calculate Q* in the short run.

Explanation / Answer

Need to double check answers. If you could explain all steps I would be appreciative.

(1) Qy = 120 – 2Py + Pz - 0.7 M

a. What type of good is y?

Ans: As the price increases the quantity demanded falls, thus it is a normal good.

b. How are goods y and z related?

Ans: These 2 are substitutes because as the price for z increases the demand for the other good, y increases.

C. Give an example of goods y and z?

Ans: Eg tea and coffee

c. Is this a demand or supply equation?

Ans: demand

(2) Linear production function:

Q = 10 +2L+4K

What’s 4?

Ans: marginal product of capital

What is MRTSL,K = MPL/MPK

Ans: In microeconomic theory, the Marginal Rate of Technical Substitution (MRTS)—or Technical Rate of Substitution (TRS)—is the amount by which the quantity of one input has to be reduced (-Delta x_2) when one extra unit of another input is used (Delta x_1 = 1), so that output remains constant (y = ar{y}).

If Q = 10, what do you call this equation?

Ans: isoquant for zero production

If this equation is for a company, what type of company is this?

Ans: no production

(3) Suppose the production function is given by

Q = 10L1/4 K3/4

Price of output is $2 and the wage rate is $100. In the short run, K=2 machines.

Plug K=2 in the production function. What do you call this functions?

Ans: Short run production function

Calculate optimal L* in the short run.

Calculate Q* in the short run.

Q= 10L1/4K3/4 = 10 L1/4 (2)^3/4

TR= P.q= 2*10 L1/4 (2)^3/4 = 10*L1/4*2^7/4 = 33.6L1/4

MR= 33.6*1/4*L(-3/4)

IN EQ, MR=MC=W

33.6*1/4*L(-3/4) = 100

Thus, L=0.036 (SOLVE FOR L AND RECHECK)

AND WE CAN PUT THIS IN SHORT RUN EQ TO GET Q

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.