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Question 2: A firm producing hockey sticks has a production function given by q= 8k0.5l 0.5...

Question 2: A firm producing hockey sticks has a production function given by q= 8k0.5l 0.5 In the short run, the firm’s amount of capital equipment is fixed at k=25. The rental rate for k is v=$1 and the wage rate for l is w=$4. (a) Calculate the firm’s total cost function, average cost function and marginal cost function in the short run. (b) What are the SC, SAC and SMC for the firm if it produces 25 hockey sticks? 50 hockey sticks? 100 hockey sticks? (c) Graph the SAC and SMC curves for the firm. Indicate the points found in part (b). (d) Where does the SMC curve intersect the SAC curve? Explain why the SMC curve will always intersect the SAC at its lowest point. Suppose now that capital used for producing hockey sticks is fixed at k* in the short run.

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Answer #1

SMC cuts sac from below, & both curves are u shaped, initially MC falls as output rise, but after a production level,MC rise

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