Problem 1: An industry can be characterized by the following production function:
Q = 2.5L0.60 C0.40
(a) What is the algebraic expression for the marginal productivity of labor?
(b) What is the algebraic expression for the average productivity of labor?
(c) How would you characterize the returns-to-scale in the industry?
Problem 2: You drive 5000 miles a year and buy gasoline at the price of $2/gal. Except for differences in annual costs, you are indifferent between driving a 10 year old Buick ($400/yr, 20 miles per gal) or a 10 year old Toyota ($800/yr, 50 miles per gal).
(a) Which one do you choose to drive?
(b) How does your decision change if the price of gas is $1.75 per gallon?
Problem 3: A perfectly competitive firm has a MPL = 22-L. If P = 5 and w = $10/hr:
(a) What is the optimal quantity of labor demanded?
(b) Given these circumstances, how can the firm and the employee avoid outsourcing?
(c) How does the "slacker" or "lazy" worker compound the other workers problems?
Problem 4: A skier needs two pair of skis for every pair of bindings, due to wear and tear. Income equals $3600. Skis are $480 per pair bindings are $240 per pair.
What is the skiers' best affordable bundle of skies & binding, given this information?