Consider the firm of the previous question ( with f(L, K) = 2KL and with w= 1
Question:
Consider the firm of the previous question ( with f(L, K) = 2KL and with w= 1 and r= 4). For the following questions suppose that this firm currently uses K= 4machine hours, and that this can't be changed in the short-run.
a) Write down the short-run production function f(L) (with the fixed K= 4).
b) How many labor hours the firm should use in order to produce a given quantity Q of output?
(c) What is the cost of producing Q units?
d) What are the average cost and marginal cost functions for the cost you calculated above?
e)i n one graph draw the average cost and marginal cost curves. The graph should show the relationship between these two curves - the exact shape of the curve is not important.
f) What is the efficient scale of production? What is the average cost at the efficient scale of production?
g) Assume that the rK= 44 = 16 dollars that the firm pays for its capital are sunk. What is the profit maximizing quantity as a function of the market price p? Draw the supply curve of the firm. What are the firm's profits (as a function of p)?
h) How would the supply curve change if the fixed cost (of 16 dollars) is avoidable instead of sunk?