University of Pittsburgh-Pittsburgh Campus - ECON 1100 Intermediate Econ Third Quiz Fall 2014 1)If the marginal rate of technical substitution for a cost minimizing firm is 10, and the wage rate for labor is $5, what is the rental rate for capital in dollars? A

University of Pittsburgh-Pittsburgh Campus - ECON 1100

Intermediate Econ Third Quiz Fall 2014

1)If the marginal rate of technical substitution for a cost minimizing firm is 10, and the wage rate for labor is $5, what is the rental rate for capital in dollars?

A. .5 B. 1

1. 1. 3. 2
      4. 10
2. When the isocost line is tangent to the isoquant, then
   1. 1. MP_L = MP_K.
      2. the firm is producing that level of output at minimum cost.
      3. the firm has achieved the right economies of scale.
      4. All of the above.
3. Explain why in the long run a firm that is cost minimizing will choose K and L where:

w/MPL = r/MPK

What does this tell you about the marginal cost of increasing output through hiring labor and the marginal cost of increasing output through adding capital?

=

4. Suppose a firm’s production function is f(L,K) = 4L^1/2K^1/2 while the market wage is w = 1 and the rental rate of capital is r = 1.

Intermediate Econ Third Quiz, Page 2 of ?? Fall 2014

1. 1. Find the cost minimizing input bundle when Q = 32 units are produced.

1. 2. Find the minimum cost to the firm when producing Q = 32.