Solutions to Additional Ch 9 & 10 Problems

SCENARIO 1
Given Q(K, L) = L3 + 2KL2 ; in the short run, K = 4; interpret M RT S when K = 2
and L = 1; no cost info given.
M PL =

Q(K,L)
L

= (3L2 ) + 2K(2L) = 3L2 + 4KL

M PK =

Q(K,L)
K

= 2L2

M RT S =

M PL
M PK

3L2 +4KL
2L2

= 32 + 2 K
L
 

At the point on an isoquant where K = 2 and L = 1, the M RT S = 23 + 2 21 = 52

So you can substitute 2.5 units of capital for 1 unit of labor without changing the output
level.
Returns to scale:
Q0 = Q(cK, cL) = (cL)3 + 2(cK)(cL)2 = c3 (L3 + 2KL2 ) = c3 Q(K, L)
Since c3 > c, the output grew by a factor larger than the inputs, and we have increasing
returns to scale.
Now for the short-run part...
Q(L) = Q(4, L) = L3 + 2(4)L2 = L3 + 8L2
AP =
MP =

Q(L)
L

= (L3 + 8L2 )/L = L2 + 8L

Q(L)
L

= 3L2 + 8(2L) = 3L2 + 16L

AP is minimized where AP = M P :
L2 + 8L = 3L2 + 16L
2L2 = 8L
L=4

SCENARIO 2
Given Q(K, L) = K 1/3 L1/3 ; in the short run, K = 8; interpret M RT S when K = 2 and
L = 1; w=2 & r=3.
M PL =

Q(K,L)
L

= K 1/3 ( 13 L2/3 ) =

K 1/3
3L2/3

M PK =

Q(K,L)
K

= ( 13 K 2/3 )L1/3 =

L1/3
3K 2/3

M RT S =

M PL
M PK

K 1/3 /(3L2/3 )
L1/3 /(3K 2/3 )

K 1/3 (3K 2/3 )

L1/3 (3L2/3 )

K
L

At the point on an isoquant where K = 2 and L = 1, the M RT S = 21 = 2

So you can substitute 2 units of capital for 1 unit of labor without changing the output
level.
Returns to scale:
Q0 = Q(cK, cL) = (cK)1/3 (cL)1/3 = c2/3 K 1/3 L1/3 = c2/3 Q(K, L)
Since c2/3 < c, the output grew by a factor smaller than the inputs, and we have decreasing
returns to scale.
Now for the short-run part...
Q(L) = Q(8, L) = 81/3 L1/3 = 2L1/3
AP =
MP =

Q(L)
L

= 2L1/3 /L = 2/(L2/3 )

Q(L)
L

=2

 
1
3

L2/3 =

2
(3L2/3 )

AP is minimized where AP = M P :
2
= 3L22/3
L2/3
But this is impossible. AP can never by equal to M P , so there is no minimum on the
AP curve.
F C = rK = 3(8) = 24
V C = wL = 2L
But we need to get V C in terms of Q, so lets use the short-run production function to
get L in terms of Q:
Q(L) = 2L1/3
Q
= L1/3
2
2

 3
Q
2

=L

Q3
8

L=
Now we can plug this in for L in the V C:
V C = 2L = 2(Q3 )/8 = Q3 /4
T C = F C + V C = 24 + Q3 /4 (sometimes we label this cost ST C to be specifically shortterm)
AF C = F C/Q = 24/Q
3
AV C = V C/Q = QQ/4 = Q2 /4
AT C = AF C + AV C or ST C/Q = 24/Q + Q2 /4
SM C =

ST C
Q

= 43 Q2 (also =

SV C
)
Q

AT C is minimized where AT C = SM C:
24
+ 41 Q2 = 34 Q2
Q
24
= 12 Q2
Q
48 = Q3
Q = 48( 1/3) 3.6
So the AT C hits its minimum at approximately Q = 3.6.
(Note that AV C also hits its minimum when its equal to SM C. But its impossible to
have 14 Q2 = 34 Q2 , except in the trivial case of Q = 0, so there is no minimum cost.)
Heres an extra challenge, back in the long-run environment: Try to find the formula for
the long-run expansion path. This is the relationship between K and L as the firm gets
larger.
You can find this using the formula
M PL
= M rPK
w

1/3
2/3 )
(K 1/3 )/(3L2/3 )
= (L )/(3K
2
3
K 1/3
L1/3
= 9K
2/3
6L2/3
K = 32 L

SCENARIO 3
Given Q(K, L) = K 2 L K 3 ; in the short run, K = 2; interpret M RT S when K = 2 and
L = 8; w=1 & r=2.
M PL =

Q(K,L)
L

= K2

M PK =

Q(K,L)
K

= 2KL 3K 2

M RT S =

M PL
M PK

K2
2KL3K 2

At the point on an isoquant where K = 2 and L = 8,

22
4
1
M RT S = 2(2)(8)3(2)
2 = 3212 = 5 . So you can substitute 0.2 units of capital for 1 unit of
labor without changing the output level.
Returns to scale:
Q0 = Q(cK, cL) = (cK)2 (cL) (cK)3 = c3 (K 2 L K 3 ) = c3 Q(K, L)
Since c3 > c, the output grew by a factor larger than the inputs, and we have increasing
returns to scale.
Now for the short-run part...
Q(L) = Q(2, L) = 22 L 23 = 4L 8
AP =
MP =

Q(L)
L

= (4L 8)/L = 4 (8/L)

Q(L)
L

=4

AP is minimized where AP = M P :
4 (8/L) = 4
But this is impossible. AP can never by equal to M P , so there is no minimum on the
AP curve.
F C = rK = 2(2) = 4
V C = wL = 1L = L
But we need to get V C in terms of Q, so lets use the short-run production function to
get L in terms of Q:
Q = 4L 8
L = 41 (Q + 8) = Q4 + 2
4

Now we can plug this in for L in the V C:

V C = L = Q4 + 2
T C = F C + V C = Q4 + 6 (sometimes we label this cost ST C to be specifically short-term)
AF C = F C/Q = 4/Q
AV C = V C/Q = ( Q4 + 2)/Q = 41 + Q2
AT C = AF C + AV C or ST C/Q = 14 +
SM C =

ST C
Q

1
4

(also =

6
Q

SV C
)
Q

AT C is minimized where AT C = SM C:
1
+ Q6 = 14
4
But this is impossible. AT C can never by equal to SM C, so there is no minimum on the
AT C curve.
(Note that AV C also hits its minimum when its equal to SM C. But its impossible to
have 14 = 14 + Q2 , so there is no minimum cost.)
Heres an extra challenge, back in the long-run environment: Try to find the long-run
cost curve, like we do in Question 13 of the practice problems in Aplia, or Question 12
of the graded problems. Youll get some awkward numbers/exponents because I wasnt
thinking of this additional piece when I set it up, but bear with me...
First we have to find the long-run expansion path. This is the relationship between K
and L as the firm gets larger. You can find this using the formula
M PL
= M rPK
w
2
K2
= 2KL3K
1
2
2K 2 = 2KL 3K 2
5K 2 = 2KL
K = (2/5)L
Now we use this, in combination with the long-run production function, to get K and L
in terms of Q.
2
Q = K 2 L K 3 = ( 25 L)2 L ( 52 L)3 = 125
L3
So L = (125Q/2)1/3 = 5(Q/2)1/3 .
Plug this back in the long-run expansion path to get
K = 52 L = 25 (5(Q/2)1/3 ) = 2(Q/2)1/3
Long-term total cost in terms of K and L is simply
LT C = rK + wL = 2K + L
We can use the L and K formulas we found above to get
5

LT C = 2 2(Q/2)1/3 + 5(Q/2)1/3 = 9(Q/2)1/3

Now you could get LAC by dividing by Q, or LM C by taking the derivative wrt Q.