posted by jon on .
suppose a firm's constant-returns to scale production function requires it to use capital and labor in a fixed ratio of two workers per machine to produce 10 units and that the rental rates for capital and labor are given by v=1, w=3.
a. calculate the firm's long run total and average cost curves.
b. Suppose K is fixed at 10 in the short run. Calculate the firms short run toatl and average cost curves. What is the marginal cost of the 10 th unit? The 25th unit? the 50th unit? the 100th unit?
take a shot, what do you think?
Hint. With the given constant returns to scale, and that all labor and capital can be purchased at constant prices, the TC 'curve' should be an upward sloping line, and the MC and AC curves should be flat lines.
A firm uses capital to produce revenue. The marginal revenue from the first 5 units of capital is as follows: 1st unit has MR 2.1, 2nd unit has MR 1.93, 3rd unit has MR 1.76, 4th unit has MR 1.55, and 5th unit has MR 1.35. If the interest rate is 51%, what is the optimal amount of capital for this firm to borrow?