This topic contains a solution. Click here to go to the answer

Author Question: Joe owns a small coffee shop, and his production function is q = 3KL where q is total output in cups ... (Read 152 times)

dbose

  • Hero Member
  • *****
  • Posts: 597
Joe owns a small coffee shop, and his production function is q = 3KL where q is total output in cups per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor).
 
  If Joe's capital is currently fixed at K=3 machines, what is his short-run production function? A) q = 3L
  B) q = 3L2
  C) q = 9L
  D) q = 3K2

Question 2

Consider a competitive market in which people consume at the point where their marginal rates of substitution between products X and Y are 3/5.
 
  In this same market, producers produce where their marginal rates of transformation between X and Y are also 3/5. However, producers are producing 7 of Y and 3 of X, and consumers wish to consume 5 of Y and 5 of X per unit of time. Explain how this situation can exist. Also determine if it represents an equilibrium or not. If not an equilibrium, what will tend to happen in the market?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

sylvia

  • Sr. Member
  • ****
  • Posts: 331
Answer to Question 1

C

Answer to Question 2

Because MRS = MRT, one would expect output efficiency. However, producers are not producing quantities of X and Y that equal the quantities of X and Y that consumers wish to purchase. In this case producers are producing more of Y and less of X than consumers wish to purchase. Prices in the market will adjust such that the price of Y will fall and the price of X will rise. This means that the ratio of prices PX / PY increases, and the price line will move along the production frontier. An equilibrium results when the price ratio is PX > PX and PY < PY. More of X will be produced and less Y will be produced. At the equilibrium, producers will be producing quantities of both X and Y that just equal the quantities being taken from the market by consumers. At the new equilibrium the new MRT = MRS , and the competitive equilibrium will be efficient.




dbose

  • Member
  • Posts: 597
Reply 2 on: Jul 1, 2018
Excellent


carojassy25

  • Member
  • Posts: 299
Reply 3 on: Yesterday
:D TYSM

 

Did you know?

The first oral chemotherapy drug for colon cancer was approved by FDA in 2001.

Did you know?

The tallest man ever known was Robert Wadlow, an American, who reached the height of 8 feet 11 inches. He died at age 26 years from an infection caused by the immense weight of his body (491 pounds) and the stress on his leg bones and muscles.

Did you know?

Pink eye is a term that refers to conjunctivitis, which is inflammation of the thin, clear membrane (conjunctiva) over the white part of the eye (sclera). It may be triggered by a virus, bacteria, or foreign body in the eye. Antibiotic eye drops alleviate bacterial conjunctivitis, and antihistamine allergy pills or eye drops help control allergic conjunctivitis symptoms.

Did you know?

To combat osteoporosis, changes in lifestyle and diet are recommended. At-risk patients should include 1,200 to 1,500 mg of calcium daily either via dietary means or with supplements.

Did you know?

Medications that are definitely not safe to take when breastfeeding include radioactive drugs, antimetabolites, some cancer (chemotherapy) agents, bromocriptine, ergotamine, methotrexate, and cyclosporine.

For a complete list of videos, visit our video library