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(solution) In exercise 8.14 (page 292) you derived Hannah and Sam’s long-run and short-run cost function...


In exercise 8.14 (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) 10L0.5K0.5, both a worker and a unit of capital cost $1,000 per week, and they initially remodel 200 square feet per 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 8.14 Consider again worked-out problem 8.6 (page 286) but assume that a unit of capital costs $1,000 per week and that Hannah and Sam are initially remodeling 200 square feet per week. What are their short-run and long-run cost functions? Problem 8.6 Johnson Tools produces hammers. It has signed a labor contract that guarantees workers a minimum of 30 hours per week of work. The contract also doubles the regular $20 per hour wage for overtime (more than 30 hours per week). Johnson’s production technology uses only one variable input, labor. The company can produce two hammers per hour of employed labor. What is its variable cost function? Graph its variable cost curve.

 

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