Question

***Please don't forget the Excel Solver item.***

A firm’s production technology is given by the production function

q = 0.25 LK

where L represents labor hours, K machine hours and q the amount of output. The market wage and rental rates are, w= $16 and r = $256.

The firm is operating in the long run where it can adjust both inputs.

(b) Calculate the short run total cost if q =100 and w= $16 and r = $256, but capital, K is fixed at 2.

(c) Calculate the short run total cost if q =100 and w= $16 and r = $256, but capital, K is fixed at 2.

(d) Without assuming a specific numerical production target, but using w= $16 and r = $256 calculate the equation for the long run total cost function (in terms of q).

(Hint: Assume that the level of output is q. Using the above w, r values first determine the least cost combinations of L and K)

(e) Using Excel- Solver verify your answers to (b) above. (Yes, we need to use Solver for this one.)

(Show your work. Show the spreadsheets in detail. Show the Solver window embedded on the relevant worksheet so that the commands in the Solver window become directly visible and are linked to the cells of the worksheet.

***Please don't forget the Excel Solver item.***