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The MSU firm has the production function: q = f(L,K) = 4 L^(1/2) K^(1/2) The market has many firms identical to the MSU firm. The price of capital is r = 4 and the price of labor is w = 1 A. On the graph below: Draw the isoquant for q = 24, and the isocost lines for C1 = 16, C2 = 24 and C3 = 32. Draw the isoquant for q = 16. Draw the expansion path. B. Does the MSU firm have: Increasing, Decreasing, or Constant Returns to Scale? Economies of Scale, Diseconomies of Scale or neither? C. Write the Long Run Total Cost equation, and Long Run Average Total Cost (LRAC) equation. D. On the graph below draw the Long Run Average cost curve. What is the long run price per unit in this market? Be careful to draw the LRAC that you get in part C.

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9676891

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