Economics Questions

29. A firm produces output according to a production function:

Q = F(K,L) = min {2K, 2L}

a. How much output is produced when K = 2 and L = 3?

Answer: ______________

b. If the wage rate is $40 per hour and the rental rate on capital is $20 per hour, what is the cost minimizing input mix for producing 4 units of output?

Answer: Capital __________

Labor ___________

c. How does your answer to part b change if the wage rate decreases to $20 per hour but the rental rate on capital remains at $20 per hour?

1. Capital and labor increase

2. It does not change

3. Capital decreases and labor increases

4. Capital increases and labor decreases


30. The head of the accounting department at a major software manufacturer has asked you to put together a pro forma statement of the company’s value under several possible growth scenarios and the assumption that the company’s many divisions will remain a single entity forever. The manager is concerned that, despite the fact that the firm’s competitors are comparatively small, collectively their annual revenue growth has exceeded 50 percent over each of the last five years. She has requested that the value projections be based on the firm’s current profits of $3.3 billion (which have yet to be paid out to stockholders) and the average interest rate over the past 20 years (8 percent) in each of the following profit growth scenarios.

a. Profits grow at an annual rate of 3 percent _____________________

b. Profits decline at an annual rate of 5 percent _____billion(round to 2 decimal places)

c. Profits grow at an annual rate of 0 percent ____billion(round to 2 decimal places)


31. The supply curve for product X is given by QXS = -500 + 20PX .

a. Find the inverse supply curve.

P = + Q

b. How much surplus do producers receive when Qx = 380? When Qx = 940?

When QX = 380: $

When QX = 940: $







32. You’ve recently learned that the company where you work is being sold for $550,000. The company’s income statement indicates current profits of $24,000, which have yet to be paid out as dividends. Assuming the company will remain a “going concern” indefinitely and that the interest rate will remain constant at 7 percent, at what constant rate does the owner believe that profits will grow?

Instruction: Round your response to 2 decimal places.

Growth rate of: percent.







33. Suppose market demand and supply are given by Qd = 100 – 2P and QS = 5 + 3P. If a price ceiling of $10 is imposed, what will be the resulting full economic price?

[removed] $19.







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