Concepts and Methods:

Microeconomics - Exercises
Chapter 4 : Production

Ex 1.- Cars’ production function is the following : Q = 100K0.6L0.4

a.- What kind of return does this technology represent for the labour (L) input ; then for
the capital (K) input?
b.- Is MRST decreasing?
c.- If L=10 and K=18, compute MP of labour and capital as well as the MRST between L
and K.

Ex 2.- What type of returns for the following production functions?

1 1
a.- y  K 2 L 3

1 1
b.- y  3K 2 L 2 ,
1 1
c.- y  K 2  L 2

d.- y  2 K  3L

Chapter 5: production costs

Ex 1.- One firm uses machinery (M) and labour (L) to produce a good with the following
production function : f(L,M) = 4L1/2 M1/2 .
The cost of labour input is 40 Euros and the cost of machinery is 10 Euros.
a.- Draw the isocost curves of 400 euros and 200 euros. What is the slopes of the curves?
b.- If the firm minimizes its costs, how many person and machinery will it use ? what is the
equilibrium condition?
c.- Graph the isoquant corresponding to 40 units of output, then compute the optimal
bundle of inputs to produce 40 units of output. Compute the production cost.
d.- write the total cost function

Ex 2.- The firm called « koffiecup » produces 200 coffee cups per month. Its fixed costs are
500 euros per month. At this level of production, the marginal cost is equal to the average cost
and its value is 10 euros. If the firm produces 150 units, the marginal cost equals the average
variable cost and its value is 7 euros. The price of a cup of coffee on the market is 8 euros.
What would you advice to the firm if its objective is to maximize its profit : produce 200 cups
or produce more or less or close the firms?

Ex 3.- The long run average cost of a firm is given by LR AC= 100 + (150 – Q)². Are there
economies of scales when Q<150 ? what about economies of scales if Q>150 ?