Question
1. A manufacturer produces a container of potato salad using 1 pound of Idaho potatoes, 1 pound of Maine potatoes, or 1 pound of a
1. A manufacturer produces a container of potato salad using 1 pound of Idaho potatoes, 1 pound of Maine potatoes, or 1 pound of a mixture of the two types of potatoes. Does the marginal rate of technical substitution vary along the isoquant? What is the MRTS at each point along the isoquant?
2. Suppose that for the function q = f(L,K), if L = 3 and K = 5 then q = 10. Is it possible that L = 3 and K = 6 also yields q = 10 for this production function? Why or why not?
3. During recessions, U.S. firms lay off a larger proportion of their workers than Japanese firms do. (It has been claimed that Japanese firms continue to produce at high levels and store the output or sell it at relatively low prices during the recession.) Assuming that the production function remains unchanged over a period that is long enough to include many recessions and expansions, would you expect the average product of labor to be higher in Japan or the United States? Why?
4. Based on the estimates of Pollard and Ferencz (2014), the Cobb-Douglas production function of the Japanese beer industry is q = 1.52 L0.6 K0.5. If the capital is fixed at 100 and the rental rate is $8. Calculate the average fixed cost.
5. The U.S. chemical industry has a production function of q = 10L0.44K0.56 (based on Hsieh (CSULA), 1995). If it faces factor prices of w = 10 and r = 20 and its capital is fixed at K = 100, what are its short-run cost, variable cost, average variable cost, and marginal variable cost functions?
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