UNIVERSIDAD AUTÓNOMA DE NUEVO LEÓN

FACULTAD DE CONTADURÍA PÚBLICA Y ADMINISTRACIÓN

LICENCIATURA EN NEGOCIOS INTERNACIONALES

ECONOMÍA PARA LA TOMA DE DECISIONES

EJERCICIO 5 OBLIGATORIO MODALIDAD MIXTA.

1. A firm can manufacture a product according to the production

function.

a. Calculate the average product of labor when the level of

capital is fixed at 16 units and the firm uses 16 units of labor.
How does the average product of labor change when the firm
uses 81 units of labor?
APL= Q/L
K= 16 Production Function: Q= 16^(1/2) × L^(1/2) = 4 × L^(1/2)
APL= 4 × L^(1/2) / L = 4 / L^(1/2) = 4L^(-1/2)

L= 16 APL= 4 / (16)^(1/2) = 4/4 = 1

L= 81 APL= 4 / (81)^(1/2) = 4/9 = 0.444
The average product of labor when K = 16 and L = 16 is 1. When L
increases to 81, the APL decreases to 0.444.

b. Find an expression for the marginal product of labor,

when the
amount of capital is fixed at 16 units. Then, illustrate that the
marginal
product of labor depends on the amount of labor hired by
calculating the marginal product of labor for 16 and 81 units of
labor.
MPL= ∂Q/∂L = ∂(K^(1/2) × L^(1/2))/∂L = K^(1/2) × (1/2)L^(-1/2)
 When K = 16:
MPL = 16^(1/2) × (1/2)L^(-1/2) = 4 × (1/2)L^(-1/2) = 2L^(-1/2)
 For L = 16:
MPL = 2 × (16)^(-1/2) = 2/4 = 0.5
 For L = 81:
 MPL = 2 × (81)^(-1/2) = 2/9 = 0.222
The expression for MPL when K = 16 is 2L^(-1/2).
When L = 16, MPL = 0.5, and when L = 81, MPL = 0.222.
This shows that as more labor is hired, the marginal product of
labor decreases.
 c. Suppose capital is fixed at 16 units. If the firm can sell its
output at a price of $100 per unit and can hire labor at $25 per
unit, how many units of labor should the firm hire in order to
maximize profits?

To maximize profit, the firm should hire labor until MPL × P = w, where P is
the price of output and w is the wage rate.

P= $100, W= $25

MPL x P = w

2L^(-1/2) × 100 = 25 The firm should hire 64 units of labor

to maximize profits when K = 16, P =
2 × 100 / L^(1/2) = 25 $100, and w = $25.
200 / L^(1/2) = 25

L^(1/2) = 200/25 = 8

L = 64

2. A firm’s product sells for $2 per unit in a highly competitive market.

The firm produces output using capital (which it rents at $75 per hour)
and labor (which is paid a wage of $15 per hour under a contract for 20
hours of labor services). Complete the following table and use that
information to answer the questions that follow.

K L Q MPk APk API VMPk

0 20 0 - - 0 -

1 20 50 50 50 2.5 100

2 20 150 100 75 7.5 200

3 20 300 150 100 15 300

 4 20 400 100 100 20 200

5 20 450 50 90 22.5 100

6 20 475 25 79.17 23.75 50

7 20 475 0 67.86 23.75 0

8 20 450 -25 56.25 22.5 -50

9 20 400 -50 44.44 20 -100

10 20 300 -100 30 15 -200

11 20 150 -150 13.64 7.5 -300

a. Identify the fixed and variable inputs.

Fixed input: Labor (L) remains constant at 20 units throughout the table
Variable input: Capital (K) varies from 0 to 11 units

b. What are the firm’s fixed costs?

The fixed costs are the costs of the fixed input (labor):

Labor cost = 20 hours × $15 per hour = $300

c. What is the variable cost of producing 475 units of output?

From the table, 475 units of output are produced when K = 6 or K = 7 units
of capital.

Variable cost = 6 units of capital × $75 per hour = $450

d. How many units of the variable input should be used to

maximize profits?

To maximize profits, we need to find where the value of the marginal product
of capital (VMPₖ) equals the price of capital ($75).

Looking at the table, VMPₖ = $100 when K = 5, and VMPₖ = $50 when K =
6. Since $75 falls between these values, we can interpolate to find the profit-
maximizing level of capital:
When K = 5.5, VMPₖ ≈ $75

Therefore, the firm should use approximately 5.5 units of capital to maximize
profits.

e. What are the maximum profits this firm can earn?

When K = 5.5 (approximately):

Total output ≈ 462.5 units

Revenue = 462.5 × $2 = $925

Variable cost = 5.5 × $75 = $412.5

Fixed cost = $300

Total cost = $412.5 + $300 = $712.5

Maximum profit = $925 - $712.5 = $212.5

f. Over what range of the variable input usage do increasing

marginal returns exist?

Increasing marginal returns exist when the marginal product of capital

increases as more capital is added.

From the table, MPₖ increases from K = 0 to K = 3:

K = 1: MPₖ = 50

K = 2: MPₖ = 100

K = 3: MPₖ = 150

Therefore, increasing marginal returns exist in the range of K = 0 to K = 3.

g. Over what range of the variable input usage do decreasing

marginal returns exist?

Decreasing marginal returns exist when the marginal product of capital

decreases but remains positive.

From the table, MPₖ decreases but remains positive from K = 3 to K = 7:

K = 3: MPₖ = 150 K = 6: MPₖ = 25

K = 7: MPₖ = 0

Therefore, decreasing marginal returns

exist in the range of K = 3 to K = 7
K = 4: MPₖ = 100

K = 5: MPₖ = 50

h. Over what range of input usage do negative marginal returns

exist?

Negative marginal returns exist when the marginal product of capital is

negative.

From the table, MPₖ is negative for K ≥ 8:

K = 8: MPₖ = -25

K = 9: MPₖ = -50

K = 10: MPₖ = -100

K = 11: MPₖ = -150

Therefore, negative marginal returns exist in the range of K ≥ 8

3. Explain the difference between the law of diminishing marginal

returns and the law of diminishing marginal rate of technical
substitution.

The law of diminishing marginal returns states that as more of a variable

input is added to a fixed amount of other inputs, the marginal product of the
variable input will eventually decrease. This means that each additional unit
of the variable input will contribute less to total output than the previous unit.

The law of diminishing marginal rate of technical substitution (MRTS) refers

to how easily one input can be substituted for another while maintaining the
same level of output. It states that as more of input A is substituted for input
B along an isoquant (constant output curve), the MRTS of A for B will
diminish. This means that as a firm uses more of input A and less of input B,
it must give up increasingly larger amounts of input B to maintain the same
output level when adding more of input A.

The key difference is that the law of diminishing marginal returns

focuses on changes in output when changing one input while keeping
others fixed, whereas the law of diminishing MRTS focuses on the
substitution relationship between two inputs while keeping output
fixed.

4. An economist estimated that the cost function of a single-product

firm is

Based on this information, determine:

a. The fixed cost of producing 10 units of output.

Fixed costs are expenses that remain unchanged regardless of the

level of production. In the equation, only the constant term 50
represents fixed costs. Fixed cost = $50.

b. The variable cost of producing 10 units of output.

Variable costs are all expenses that change with the level of output.
These include all terms containing Q.

Variable cost = 25Q + 30Q² + 5Q³ (when Q = 10)

Variable cost = 25(10) + 30(10)² + 5(10)³

Variable cost = 250 + 30(100) + 5(1000)

Variable cost = 250 + 3000 + 5000

Variable cost = $8,250

c. The total cost of producing 10 units of output.

Total cost = Fixed cost + Variable cost

Total cost = 50 + 8250

Total cost = $8,300

d. The average fixed cost of producing 10 units of output.

Average fixed cost (AFC) = Fixed cost / Q

AFC = 50 / 10 = $5 per unit

 e. The average variable cost of producing 10 units of output.

Average variable cost (AVC) = Variable cost / Q

AVC = 8250 / 10 = $825 per unit

f. The average total cost of producing 10 units of output.

Average total cost (ATC) = Total cost / Q

ATC = 8300 / 10 = $830 per unit

g. The marginal cost when Q = 10.

MC = dC/dQ = 25 + 60Q + 15Q²

When Q = 10:

MC = 25 + 60(10) + 15(10)²

MC = 25 + 600 + 15(100)

MC = 25 + 600 + 1500

MC = $2,125

5. A manager hires labor and rents capital equipment in a very

competitive market. Currently the wage rate is $6 per hour and capital
is rented at $12 per hour. If the marginal product of labor is 50 units of
output per hour and the marginal product of capital is 75 units of
output per hour, is the firm using the cost-minimizing combination of
labor and capital? If not, should the firm increase or decrease the
amount of capital used in its production process?

For cost minimization, the firm should allocate inputs such that the ratio of
marginal product to input price is equalized across all inputs. That is:

MPL/w = MPK/r

Where:

 MPL = Marginal product of labor = 50 units/hour

  MPK = Marginal product of capital = 75 units/hour

 w = Wage rate = $6/hour

 r = Rental rate of capital = $12/hour

MPL/w = 50/6= 8.33units / MPK/r = 75/12= 6.25units

Since 8.33 > 6.25, the firm is getting more output per dollar spent on
labor than on capital. This means the current input combination is not
cost-minimizing.

The firm is not using the cost-minimizing combination of labor and

capital. Since MPL/w > MPK/r, the firm should decrease the amount of
capital and increase the amount of labor used in its production
process.

6. A firm’s fixed costs for 0 units of output and its average total cost of
producing different output levels are summarized in the table below.
Complete the table to find the fixed cost, variable cost, total cost,
average fixed cost, average variable cost, and marginal cost at all
relevant levels of output.

Q FC VC TC AFC AVC ATC MC

0 $10,000 $0 $10,000

100 $10,000 $15,000 $25,000 $100 $150 $250 $200

200 $10,000 $27,500 $37,500 $50 $137.50 $187.50 $125

300 $10,000 $40,833 $50,833 $33.33 $136.11 $169.44 $133⅓

400 $10,000 $55,833 $65,833 $25 $139.58 $164.58 $150

500 $10,000 $75,833 $85,833 $20 $151.67 $171.67 $200

600 $10,000 $100,833 $110,833 $16.67 $168.06 $184.73 $250

7. A multiproduct firm’s cost function was recently estimated as

 a. Are there economies of scope in producing 10 units of product 1
and 10 units of product 2?

To determine if there are economies of scope, first you need to compare:

Cost of joint production: C(10, 10)

Cost of separate production: C(10, 0) + C(0, 10)

Cost of joint production:

C(10, 10) = 75 - 0.25(10)(10) + 0.1(10)² + 0.2(10)²

= 75 - 25 + 10 + 20 = 80

Cost of separate production:

C(10, 0) = 75 - 0.25(10)(0) + 0.1(10)² + 0.2(0)² = 75 + 10 = 85

C(0, 10) = 75 - 0.25(0)(10) + 0.1(0)² + 0.2(10)² = 75 + 20 = 95

Total separate cost = 85 + 95 = 180 Since 80 < 180, there are significant
economies of scope in joint production.

b. Are there cost complementarities in producing products 1 and 2?

Cost complementarities occur when the cost of producing an

additional unit of a product decreases as the production of another
product increases.

We need to check if: ∂²C/∂Q₁∂Q₂ < 0

Taking the partial derivative: ∂²C/∂Q₁∂Q₂ = -0.25

Since -0.25 < 0, there are cost complementarities between products 1

and 2
c. Suppose the division selling product 2 is floundering and another
company has made an offer to buy the exclusive rights to produce
product 2. How would the sale of the rights to produce product 2
change the firm’s marginal cost of producing product 1?

The marginal cost of producing product 1 is:

MC₁ = ∂C/∂Q₁ = -0.25Q₂ + 0.2Q₁

Currently with Q₂ = 10, the marginal cost is:

MC₁ = -0.25(10) + 0.2Q₁ = -2.5 + 0.2Q₁

If the firm sells the rights to product 2, then Q₂ = 0, and the marginal cost
becomes:

MC₁ = -0.25(0) + 0.2Q₁ = 0.2Q₁

Therefore, selling the rights to product 2 would increase the marginal

cost of producing product 1 by eliminating the cost complementarity
benefit of 0.25Q₂ (or 2.5 units when Q₂ = 10).

8. Explain the difference between fixed costs, sunk costs, and variable
costs.

Provide an example that illustrates that these costs are, in general,

different.

Fixed costs are expenses that remain constant regardless of the production
level. They must be paid even if production is zero. Examples include rent,
insurance, and property taxes.

Variable costs change directly with the level of production. They include
materials, direct labor, and utility costs that increase as more units are
produced.
Sunk costs are past expenditures that cannot be recovered regardless of
future decisions. They should not affect future decision-making as they
cannot be recovered.

An example illustrating the differences:

A bakery signs a one-year lease for $12,000 ($1,000 per month) and
purchases an oven for $5,000. Each loaf of bread requires $2 worth of
ingredients.

Fixed cost: The $1,000 monthly rent is a fixed cost because it must be paid
regardless of how many loaves of bread are baked.

Variable cost: The $2 per loaf for ingredients is a variable cost because it
increases proportionally with the number of loaves produced.

Sunk cost: If after three months the bakery decides to change its business
model, the $5,000 already spent on the oven is a sunk cost. It cannot be
recovered, regardless of future decisions. Additionally, if the lease cannot be
terminated early, the $12,000 also becomes a sunk cost.

This example shows that while fixed costs may become sunk costs,
not all sunk costs were originally fixed costs (like equipment
purchases), and variable costs might not become sunk costs if
production can be adjusted.

9. A firm produces output according to a production function

Q = F(K,L) = min {2K,4L}.

a. How much output is produced when K = 2 and L = 3?

Q = min{2K, 4L} = min{2(2), 4(3)} = min{4, 12} = 4

4 units of output are produced.

b. If the wage rate is $30 per hour and the rental rate on capital is
$10 per hour, what is the cost-minimizing input mix for producing
4 units of output?
With a Leontief production function (fixed proportions), the optimal input mix
occurs when:

2K = 4L ⟹ K = 2L

To produce 4 units:

4 = 2K = 4L ⟹ K = 2, L = 1

Total cost = wL + rK = 30(1) + 10(2) = 30 + 20 = $50

The cost-minimizing input mix is K = 2 and L = 1, with a total cost of

$50.

c. How does your answer to part b change if the wage rate

decreases to $10 per hour but the rental rate on capital remains
at $10 per hour?

With w = $10 and r = $10:

Total cost = wL + rK = 10(1) + 10(2) = 10 + 20 = $30

The input mix remains the same (K = 2, L = 1) because this is

determined by the production technology, not by input prices. With
fixed proportions, the inputs must be used in the ratio K = 2L
regardless of prices. The cost-minimizing input mix remains K = 2 and
L = 1, but the total cost decreases to $30.

10. A firm produces output according to the production function

Q = F(K,L) = 2K + 4L.

a. How much output is produced when K = 2 and L = 3?

Q = 2K + 4L = 2(2) + 4(3) = 4 + 12 = 16 units

 b. If the wage rate is $30 per hour and the rental rate on capital is
$10 per hour, what is the cost-minimizing input mix for producing
16 units of output?

For linear production functions like this, the cost-minimizing solution is to use
only the input with the highest output per dollar of input cost.

Output per dollar for capital: 2/10= 0.2units/Output per dollar for labor:
4/30=0.133units/

Since capital provides more output per dollar, the firm should use only
capital.

To produce 16 units: 16 = 2K + 4(0) ⟹ K = 8, L = 0

Total cost = rK + wL = 10(8) + 30(0) = $80

The cost-minimizing input mix is K = 8 and L = 0, with a total cost of

$80.

c. How does your answer to part b change if the wage rate

decreases to $10 per hour but the rental rate on capital remains
at $10 per hour?

With w = $10 and r = $10:

Output per dollar for capital: 2/10=0.2units/Output per dollar for labor:
4/10=0.4units/

Now labor provides more output per dollar, so the firm should use only labor.

To produce 16 units: 16 = 2(0) + 4L ⟹ L = 4, K = 0

Total cost = rK + wL = 10(0) + 10(4) = $40

With the wage decrease, the cost-minimizing input mix changes to K =

0 and L = 4, with a total cost of $40.