Part 1: Multiple Choice 1. (10 points) Suppose a firm's production function is given by Q(L, K) = 611/3K2/3. If r = 8 and w = 32, what is the firm's long-run marginal cost? A. LRMC = 2 B. LRMC = 1/2 C. LRMC = 1/4 D. LRMC = 4 2. (10 points) The production of sunglasses is characterized by the production function Q(L, K) = 411/2K1/2. Suppose that the price of labor is $10 per unit and the price of capital is $90 per unit. In the short-run, capital is fixed at 2,500. The firm must produce 36,000 sunglasses. How much money is it sacrificing by not having the ability to choose its level of capital optimally? That is, how much more does it cost to produce 36,000 sunglasses the short-run compared to the long-run? A. 9, 000 B. 81, 000 C. 171, 000 D. 225, 000 3. (10 points) Suppose that labor and capital must be used in a fixed proportion. Specifically, each widget must be produced with exactly 2 units of labor (L) and 3 units of capital (K). The price of a unit of L is w, and the price of a unit of K is r. What is the firm's long-run total cost function? A. LRTC = (2 + 5)Q B. LRTC = (3 + [)Q C. LRTC = (2w + 3r)Q D. LRTC = (3w + 2r) Q 4. (10 points) Suppose there is a production function with MPL = 36( 7 ) and MPK = 36(). The price of capital is $5 per unit and the price of labor is $125 per unit. At the cost-minimizing combination of capital and labor, the firm should employ five times as much capital as labor A. True B. False 5. (10 points) Consider a production function given by Q(L, K) = L'K2. Let w = $32 and r = $10. In the short-run, capital is fixed at 2 units. Which equation represents the short-run average variable cost function? A. SRAVC = 8Q-1/2 B. SRAVC = 16Q-1/2 C. SRAVC = 32Q1/2 D. SRAVC = 32 E. SRAVC = 20Q-1 +8Q-1/2