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(solution) In exercise 8.15 (page 292) you derived Hannah and Sam’s long-run and short-run cost function...


In exercise 8.15 (page 292) you derived Hannah and Sam’s long-run and short-run cost function when they have the Cobb-Douglas production function Q = F(L, K) 10L0.25K0.25, both a worker and a unit of capital cost $1,000 per week, and they initially remodel 100 square feet a week. Their capital is fixed in the short run but variable in the long run. What are their long-run and short-run supply functions? Graph them. Exercise 8.15 Suppose that Hannah and Sam have the Cobb Douglas production function Q = F(L, K) = 10L0.25K0.25. Both a worker and a unit of capital cost $1,000 per week. If Hannah and Sam begin by remodeling 100 square feet per week, and if their capital is fixed in the short run but variable in the long run, what are their long-run and short-run cost functions? What are their long-run and short-run average cost functions for positive output levels?

 

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