Eco 330
Assignment 2
1. Assume that a firm has a Total Product curve given by Q = 2KL.
(a) Graph the total, marginal, and average product curves assuming that K=2.
(b) Does this TP curve exhibit diminishing marginal returns? Explain.
(c) What happens to the marginal product of labor if K increases to 3? Show it on a graph.
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2. Using the Total Product curve Q = 2KL with K=2, answer the following questions:
(a) Assuming that w = 3 and r = 5, graph the Total Cost, Variable Cost, Fixed Cost, Average Total
Cost, Average Variable Cost, Average Fixed Cost, and Marginal Cost curves.
(b) Does the TC curve exhibit diminishing marginal returns? Explain.
(c) What happens to Marginal Cost if r decreases to 2? Explain.
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3. A firm has two production processes with the following marginal cost curves: MC1 = Q1 and
MC2 = 3000 + :5Q2.
(a) If the firm wants to produce 20,000 units, how will it distribute production between process 1
and process 2?
(b) What is the largest quantity the firm can produce where the cost minimizing choice is to
produce everything with production process 1?
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4. Assume that the shoe industry is perfectly competitive. All firms in the market are identical, with
TC = 50 + 2Q + 2Q^2, and MC = 2 + 4Q. The market supply curve is given by P = (Q/ XXXXXXXXXXand
the market demand curve is P = XXXXXXXXXXQ.
(a) How much will each firm produce?
(b) What is the shut-down price for the firm?
(c) Are profits positive or negative for a representative firm? Explain.
(d) What do you expect to happen in the long-run?
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Assignment 2
1. Assume that a firm has a Total Product curve given by Q = 2KL.
(a) Graph the total, marginal, and average product curves assuming that K=2.
(b) Does this TP curve exhibit diminishing marginal returns? Explain.
(c) What happens to the marginal product of labor if K increases to 3? Show it on a graph.1
2. Using the Total Product curve Q = 2KL with K=2, answer the following questions:
(a) Assuming that w = 3 and r = 5, graph the Total Cost, Variable Cost, Fixed Cost, Average Total
Cost, Average Variable Cost, Average Fixed Cost, and Marginal Cost curves.
(b) Does the TC curve exhibit diminishing marginal returns? Explain.
(c) What happens to Marginal Cost if r decreases to 2? Explain.Page 2
3. A firm has two production processes with the following marginal cost curves: MC1 = Q1 and
MC2 = 3000 + :5Q2.
(a) If the firm wants to produce 20,000 units, how will it distribute production between process 1
and process 2?
(b) What is the largest quantity the firm can produce where the cost minimizing choice is to
produce everything with production process 1?