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Marginal cost analysis

18. If the production function is Q = K^5L^5 and capital is fixed at 4 units, then the average product of labor when L = 25 is (hint: raising a variable to the 0.5 power is the same as taking the square root):
a) 2/5.
b) 1/5.
c) 10.
d) none of the above.

20. The change in total revenue attributable to the last unit of an input is the:
a) Marginal product.
b) Average price.
c) Marginal revenue.
d) Marginal return.

22. You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q^2. What price should you charge in the short-run?
a) $12.
b) $14.
c) $16.
d) $18.

23. You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q^2. Your firm's maximum profits are
a) 36.
b) 60.
c) 40.
d) 80.

24. For the production function Q = 5.2K + 3.8L, if K = 16 and L = 12, we know that MPL is:
a) 16.
b) 5.2.
c) 3.8.
d) 12.

Solution Preview

Answer 18: (A)
Q=K^0.5L^0.5
Putting K=4 and L=25 we get
Q = 2x5 = 10
Average Product of Labor = 10/25 = 2/5

Answer 20: ...

Solution Summary

The solution answers a number of economics questions related to marginal analysis.

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