]=ww

Problem Set 3, due Tuesday, October 28.

Ini addition to the problems below, do problems 2, 3, and 5 on page 255.
1. Using three isoquants representing output levels of 10, 20, and 30, draw a graph to
demonstrate each of the following:
a) Constant returns to scale
b) Decreasing returns to scale.
c) Increasing returns to scale.
2. Draw four short run total product curves, each associated with a different level of capital.
Derive two isoquants from these total product curves (as we did in class).
3. Use isoquants to illustrate the typical assumptions about returns to scale at different levels of
production.
4. The graph below is the total product curve for producing widgets.
a) Where on this curve is the point of diminishing returns?
b) Where on this curve is APL at its maximum?
c) Where on this curve is MPL at its maximum.
d) Graphically derive the MPL and APL curves from a total product curve that has the same
general shape as the one below.

5. The graph below illustrates four isocost lines for a firm. The total costs along each isocost
line is indicated to the right of the line next to the L axis. The four dots are on the firms
expansion path.
a) Does the production of this good exhibit constant, increasing, or decreasing returns to
scale? Explain.
b) Use the graph to show how increasing output from 60 to 100 will increase costs by more
in the short run (when capital is fixed) than in the long run.
K

Q=100

Q=60

Q=30
Q=10

TC=100

TC=200

TC=300

TC=400
L

6. a) Complete the table below assuming that a unit of labor costs $5 and the firm has fixed costs
of $200.
b) Draw the total cost curve.

c) Graphically derive the marginal and average cost curves from this total cost curve.
Labor

Total Product

20

50

90

140

200

255

305

350

390

10

425

11

455

12

480

13

500

14

515

15

525

MPL

APL

TC