Part I (20 points)

A firm that manufactures office desks has the following production function in the short run:

Q = 400 L^0.8 K^0.5

where

Q = the quantity of chairs produced in a month

L = the amount of labor (hours of work) used in a month

K = the amount of capital (building, machines, equipment) used.

Assume that in the short run L = 1,000 and K = 100.

1. What is the quantity produced if L = 1,000 and K = 100? (5 points)
2. What is the quantity produced if L = 1,200 and K = 100? (5 points)
3. What is the quantity produced if L = 1,400 and K = 100? (5 points)
4. Does the law ofdiminishing marginal returns to labor apply to the production process? Why? Why not? (5 points)

Part II (30 points)

A company has a cost structure described in the table below. Using your knowledge of the types of costs involved in a production process, fill in the blanks in the table.

Quantity produced	Total Cost	Total Fixed Cost	Total Variable Cost	Average Total Cost	Average Fixed Cost	Average Variable Cost	Marginal Cost
0	100		0	-	-	-	-
1				160
2			80
3				65
4							10
5			120
6				40
7			180
8						30
9	421
10							100