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Week 6 Exercises

1. TP = 16L – 2

40

1

L ,

a. Derive the real labor demand function.

b. Compute labor employment level when W=12 and P=1.

c. Compute labor employment level when W=3 and P=1.

d. Repeat the question #b and #c with P=10.

2. Q=3KL, and r=2, w=24 and K=4 in short run. Compute short run FC, VC, MC, AFC, AVC

and ATC and graph them all.

3. Q=3KL, and r=2 and w=24.

a. Derive long run cost function and graph the iso-cost and isoquants.

b. Suppose that the cost of production is limited to $200, derive the corresponding cost

function and graph it.

c. Graphically show the maximum level of output in the given cost constraint.

4. Q=KL

a. Cost function is given that 10K+10L=100. Draw the corresponding cost function and

isoquant and identify the location for the optimal output level.

b. Cost function is given that 10K+20L=100. Repeat #a.

c. Verify if there is substitution or scale effect from here.

d. Derive the labor demand curve from this example.

5. Canadian workers (C) vs Foreign workers (F), WC=20 and WF=10;

a. C and Fare 1-for-1 substitutes. Draw the corresponding isoquant and compute the employment level of the workers. Assume C=200.

b. C and Fare 1-for-1 complements. Draw the corresponding isoquant and compute

the employment level of the workers. Assume C=200.

6. Textbook problems: Chapter 5 #1, 2, 4, 5, and 6.

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