1.

Suppose Noah and Naomi’s weekly production function for garden benches is Q = (3/2) L, where L represents the
number of hours of labor employed. The wage rate is $15 an hour. What is their cost function in short run with
one variable input?

2. Suppose college graduates earn $25 an hour and high school graduates earn $15 an hour. Suppose too that the
marginal product of college graduates at Johnson Tools is five hammers per hour, while the marginal product of
high school graduates is four hammers per hour (regardless of the number of each type of worker employed).
What is the least-cost production method for producing 100 hammers in an eight-hour day? What if the marginal
product of high school graduates was instead two hammers per hour? What is the critical difference in
productivity (in percentage terms) at which the type of worker hired changes?

3. Suppose that the production function for Hannah and Sam's home remodeling business is
Q = 10L0.2 K0.3
Assume the wage rate is $1500 per week and the cost of renting a unit of capital is $1000 per week.
What is the least-cost input combination for remodeling 100 square feet each week? What is the total cost?

4. Suppose Alpha Corporation's daily cost function is C(Q) = 100,000Q – 500Q2 + 2Q3
Its marginal cost is MC (Q) = 100,000 – 1000Q + 6Q2
What is its efficient scale of production? What is its minimum average cost?

5. Suppose that Hannah and Sam have the Cobb-Douglas production function
Q = F(L,K) = 10L0.25K0.25
Both a worker and a unit of capital cost $1,000 per week. If Hannah and Sam begin by remodeling 100 square feet
per week, and if their capital is fixed in the short run but variable in the long run, what are their long-run and
short-run cost functions? What are their long-run and short-run average cost functions for positive output levels?