ECON2233IndividualHomework3

(DueonApril28Friday,by5pm)

10 points, equivalent to 5% of the units assessments
Show the derivation process that leads to the final solution for both questions.

1. A firm produces output using capital and labour inputs according to the
production function 4 2 . Capital and labour are both supplied in
perfectly competitive input markets at prices of 4 and 4.

a) What is the most cost efficient way to produce 40 units of output? how about
producing 80 units of output? Show the isoquants, isocost lines and identify the
optimal input bundles in a properly labelled diagram. (2 marks)
b) On the same graph, draw and label the firms expansion path at these prices of
capital and labour. (1 mark)
c) Derive the firms total cost as a function of output . (2 marks)

2. Market surveys show that there are two types of consumers for frozen yogurts.
The first type like frozen yogurt and have an inverse demand of 5 . The
second type are crazy about frozen yogurt and have an inverse demand of
20 . In the town of Smallville there are only 2 consumers: one of them
likes frozen yogurt and the other is crazy about it.

a) Derive the market demand function for frozen yogurt in Smallville and plot
the market demand curves. (3 marks)
b) Suppose that the market supply for frozen yogurt in Smallville is given by
2 . Find the equilibrium price and quantity. How much does each
consumer buy at the equilibrium price? (2 marks)

Please typewrite your answers. You should attempt to draw the graphs in MSWord or similar
word processing software. Label your graphs. If you absolutely cannot draw graphs in
software you can draw them by hand, ensure they are very clear, take a photo/scan and insert
them in your MSWord file. Writing all of the assignment by hand and scanning it in is not
appreciated you should at least type in your non-graph parts of the answers.
Save a copy of your assignment as a backup.
Convert your assignment into a pdf file and upload them in the Assessments > Assessment 2
(home work 3) > Homework submission link on LMS. You can submit only once, so go over
your work thoroughly before you pdf it and upload it.