Problem sets for Microeconomics II [110051-0471]

Exercise 3.12. Flo is a university administrator. She has found that happy plants
only need fertilizer and talk. Where f is the number of bags of fertilizer used
and t is the number of hours she talk to her plants, the number of happy plants
produced is exactly h = t + 2 f . Suppose fertilizer costs w f per bag and talk costs
w t per hour.
a. If w t < w f /2, would it be cheaper for Flo to use fertilizer or talk to raise one
happy plant
b. Flo’s cost function is c ( w f , w t , h ) =............ .
c. Flo’s factor demand for talk is t ( w f , w t , h ) = ............ .
Exercise 3.13. Henry is a wealthy entrepreneur, who owns a tropical juice factory.
Its production function is given by F (K, L) = K 2/3 L 1/4 , where K and L are
respectively capital and labor inputs. The price of capital is r, and the cost of labor
is w.
a. Show the production function on the graph (use isoquants).
b. What returns to scale demonstrates the technology used
c. Henry is minimizing costs in his factory and he wants to produce Y units of
juice. Find Henry’s demand for capital
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