CQuiz 2 Question Q = K + 21 Busi el isoquant role frow y tow v a ) condition that minimize total cost given the isoquant : MPL = MPM RTS = W V W Y b ) Calculate RTS : RTS = MP. = - 2 First -D Q= + 21 0 - V = - Q + 2L MPU RTS = W = - 2 V 2 K = Q - 21 w ( ) if the wage rate ( w ) = $2 and rental rate of capital ( V ) = $4 , what is the input cost ratio ? Does this satisfy the equation in path W = 2 price ratio = w = 2 -= 1 D elves not satisfy b V = 4 V 4 2 d ) Calculate the total costs for different inputs producing Q = 10 W = 4 V = 2 TC = WL + VL = 41+24 e ) what is the least cost input ? what is I and h ? f) If the wage rate ( w ) = $ 4 and the rental rate of capital ( U ) = does this input cost ratio satisfy the equation in park b? Yes, this satisfy as the equation is two times rental rate is equal to ( w )Question 5 4.5 out of 5 points Mohamed, Amna and Mubarak constitute the entire market for karak tea. Each has his/her own demand curve. Mohamed's demand curve is: Q1 = 50 - P for P 50, Q1=0. Amna's demand curve is: Q2 = 40- P for P 40, Q2-0. Mubarak's demand curve is: Q3 = 30 - P for P 30, Q3=0. a. Calculate the individual demand at P = 10 and P = 20 for each of the three individuals. (1 point) b. Calculate the market demand at P=10 and P = 20. (1 point) c. Calculate the total revenue in the market at P = 10 and P = 20. (1 point) d. Define "price elasticity of demand". (1 point) e. Is the market demand price elastic as the price increases from 10 to 20? Explain clearly. (1 point)Question 3 5 out of 5 points A tools manufacturer has an infinitely substitutable production function of the firm Q = 2K + L a. Write down the equation/ condition that minimizes total costs given the isoquant? (1.5 points) b. Calculate the RTS. (1.5 points) c. If the wage rate (w) = $2 and the rental rate of capital (V) = $4, what is the input cost ratio? Does this ratio satisfy the equation in part b? Explain! (1 point) d. If the equality between RTS and input cost ratio is not satisfied, what does this imply about the cost of producing output? (1 point) Question 4 5 out of 5 points a. Why does the demand curve of a firm operating in a perfectly competitive market horizontal? (1 point) b. The supply curve of a firm operating in a perfectly competitive market is the upward sloping portion of the average total cost curve. Do you agree with this statement? Why or Why not? (1 point) c. If the price falls below the minimum average variable cost, the firm can still make profit and produce. Do you agree with this statement? Why or Why not? (1 point) d. If the price falls below the average total cost, the firm makes profit. Do you agree with this statement? Why or Why not? (1 point) e. In making output decisions, a firm should produce the putput level for which MR=MC. Do you agree with this statement? Why or Why not? (1 point)Question 1 2 out of 5 points Alya likes oriental sweets. Her utility function from eating Basbousa (B) and Kenafa (K) is expressed as: U (B, K) - 4B +3K a. Define the marginal rate of substitution (MRS). (0.5 point) Write down the MRS equation in terms of the marginal utility of each of the two sweets. (Assume that Kenafa is on the x-axis.) (0.5 point) b. What is the shape of Alya's indifference curve according to this utility function? (1 point) c. Calculate the MRS. (Assume that Kenafa is on the x-axis.) (0.5 point) Which of the two sweets provides Alya with more utility? Explain. (0.5 point) d. If Alya has AED 24 to spend on both sweets and both cost AED 6 per piece, how much of each sweet should she buy to maximize utility? (1 point) e. If the price of Kenafa falls to AED 1 instead of AED 6, how will this affect her choice of sweet(s) to purchase? (1 point) Question 2 4.5 out of 5 points Imagine that the production function for tuna cans is given by Q =K +0.5L where Q = output of tuna cans per hour K = Capital input per hour L = Labor input per hour a. Using the above production function, write down the equation for the isoquant. (1 point) b. Define the rate of technical substitution. What is the RTS along the isoquants? (1 point) C. Assuming capital is fixed at K = 10, how much L is required to produce 80 tuna cans per hour? (1 point) d. If K decreases to 5, how much L is required to produce 80 tuna cans per hour? (1 point) e. In your answers to parts c and d above, does labor increase or decrease as K decreases? By how much? (1 point)