QUESTION:

TRUE OR FALSE and Explanation

Each of the following questions must be answered as true or false. To be "true," a statement must always be true. If there is at least one case where the statement is not true (or if you need more information to be sure), answer "false." You must justify each answer with an appropriate explanation or counterexample (which may include a relevant diagram).

1. A completely competitive company with a marginal cost of MC(q) = 4 + 6q, faces an output price of p = $26, and decides to produce q= 4 units. Therefore, In order to maximize profits, this firm. would increase output.

2. Consider two firms, Apple and Samsung, with the following two production functions:

fa(L,K)=min(L,K)and fb(L,K)=[min(L,K)]1/2, For example, if Samsung hires four workers and four pieces of capital, the firm would be able to produce two phones as opposed to Apples' four with the same inputs. If both firms face the same inputs costs (wage w and rental rate r), then the ratio of capital to labor (K/L) that each firm uses will be the same.

3. Haley consumes running shoes and packs of energy gel. If energy gel is an inferior good and becomes more expensive, then the income effect of that price change would induce Haley to consume more energy gel.

4. A firm can make widgets using capital and labor according to the production function f(K,L)=100L+0.5KDenote the wage w and the rental rate on capital r. If r is sufficiently high, the firm will not hire any capital, no matter how many widgets it wants to produce.