Thursday
July 31, 2014

Homework Help: Economics

Posted by TrickyEcon on Wednesday, July 15, 2009 at 9:14pm.

There is a graph showing the expansion path and three curves at 120, 180, 240 output levels.The expansion path hits these lines at(120) 20 (C)(capital units) 4(L)(Labor units, (180) 40 (C) 6(L), (240) 50(C) 8(L). There are three straight lines in faded gray that run with these curves...(120) 40(C) to 8(L), (180) 60(C) to 12(L), (240) 90 (C) to 18 (L)...I hope this helps recreate the graph?

Capital runs by 10's to 100 on the left-vertically and Labor runs by 2's to 20 horizontally

The production engineers at Impact Industries have derived the expansion path shown in the following figure described above. The price of labor is $100 per unit.

A.) What price does Impact Industries pay for capital?
B.) If the manager at Impact decides to produce 180 units of output, how much labor and capital should be used in order to minimize total costs?
C.) What is the total cost of producing 120, 180 and 240 units of output in the long run?
D.) Impact Industries originally built the plant (i.e. purchased the amount of capital) designed to produce 180 units operatimally. In the short run with capital fixed, if the manager decides to expand production to 240 units, what is the amount of labor and capital that will be used? (Hint: How must the firm expand output in the short run when capital is fixed?)
E.) Given your answer to part d, calculate the average variable, average fixed, and average total cost in the short run.


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