PART A: For each worker, determine that worker's marginal product of labor.

Size: px
Start display at page:

Download "PART A: For each worker, determine that worker's marginal product of labor."

Transcription

1 ECON 3310 Homework #4 - Solutions 1: Suppose the following indicates how many units of output y you can produce per hour with different levels of labor input (given your current factory capacity): PART A: For each worker, determine that worker's marginal product of labor. Labor Output Marginal Product PART B: Suppose you can sell each unit of y that you produce for $1, and suppose that you can hire workers at a rate of $5 per hour. How many workers will you hire? How much output will you produce per hour? How much money will you make? You will hire 7 workers. (Or 6 workers; The 7 th worker produces 5 units of goods worth $1 each, and I have to pay him $5. So you will break even on the 7 th worker and will be indifference as to whether or not you hire this 7 th worker.) You will therefore produce output of 75 or 80 units per hour, and you will make a total of $45 (after paying for labor). PART C: Suppose instead that you have to pay workers $12 per hour. How does your answer change? You will hire 5 workers, produce 65 units per hour and make $5. PART D: Suppose instead that you have to pay workers $20 per hour. How does your answer change? At this new wage you would choose to not produce at all.

2 PART E: Use the information above to derive the labor demand curve. wage labor (# workers) Note: the above assumes that labor is perfectly divisible, rather than being only available in the discrete units in the table; If only discrete whole numbers of workers are allowed, then the labor demand will look as shown below: w labor Question 2 - PART A: True or False: Average costs can never rise when marginal costs are below average costs. (Explain) TRUE: The only way an average can rise is for the marginal quantity to be above that average. The example given in class is that of grades - the only way the (marginal) final exam grade can raise your average is for it to be higher than your average for the class up to that date. Similarly, the only way the average cost of production can rise when we produce one more unit is if that unit costs more to produce than the previous average.

3 PART B: True or False: Average costs can never rise while marginal costs are falling. (Explain) FALSE: As long as marginal cost (MC) lies above the average cost, it will lift the average cost. The following graphical example is logically possible: MC AC PART C: True or False: A producer would never produce when his profits are zero because, since he is not making anything, he would be better off just doing nothing and enjoying life. (Explain) An economic profit of zero just means that the producer is making as much in this business as he could be making in his or her next best alternative business. If he stopped working, he would be making nothing and would thus be making negative economic profit. Therefore the answer is FALSE. QUESTION 3: Suppose a firm faces the following short run total costs (and suppose the firm can only produce integer units of y): Y TC PART A: Construct a table in which you show for each level of y the fixed cost, the variable cost, the average total cost, the average variable cost, and the marginal cost. Y TC FC VC AC AVC MC

4 PART B: Suppose you are a price taker and face a market price of $6 per unit. How much will you produce? How much profit will you make? You will produce at the point where MC = MR (which is $6). You will therefore produce 7 units. You total profit will be: (Note: Fixed Costs are not economic cost in the short run so we use the following formula to calculate profit) TR-VC = Profit = Revenue TC = $13 Therefore you will make a profit of $13, and produce 7 units. PART C: Suppose the price rises to $9. How much will you produce now? At price = $9, you will produce 9 units (or 8). The new profit level will be $36. PART D: Suppose the price falls to $4. How much will you produce now in the short run? At price = $4, you will produce 7 units (or 6) in the short run. Your profit will be as follows: profit = revenue TC = 4*7 29 = $-1 Notice that this profit is negative. Nonetheless, you will continue to produce (7 units) in the short run. This is because you are covering your variable costs. By shutting down, you would lose more money (-$6 due to the fact that your fixed costs are sunk). You could therefore define their short run profit as being: SR profit= revenue VC = 4*7 23 = $5. Since Revenue Variable Costs > 0, you should continue to produce in the short run. (In long run, assuming nothing changes, you will leave the industry.) QUESTION 4. Suppose the hourly wage for labor (l) is $5 and the price of each unit of capital (K) is $25. The price of output is constant at $50 per unit. The production function is q = l 1/2 K 1/2 so that the marginal product of labor is MP l =1/2 (K/l) 1/2 a. If the current capital stock is fixed in the short run at 1,600 units, how much labor should the firm employ in the short run? How much output is produced? What is the firm s short run profit? MRP L = p*mp L = w 50 * (1/2) (K/L) 1/2 = 5 50 * (1/2) (1600/L) 1/2 = 5 5 * 40 = L 1/2 L= = 40,000

5 Q = L 1/2 K 1/2 Q = (40,000) 1/2 (1600) 1/2 = 200*40 = 8,000 SR Profit = p*q w*l = (50)(8,000) (5)(40,000) = 200,000 QUESTION 5. Consider a firm that specializes in typing papers for professors who do not know how to type. Suppose that the technology for the firm is such that it has two inputs: secretaries and computers. Each secretary needs a computer in order to produce something, and no secretary can work on more than one computer at a time. Thus, computers and secretaries are perfect complements in production. However, secretaries can specialize with some typing text, others typing equations, yet others drawing graphs on the computer. Thus, as the number of secretaries and computers goes up by x%, output of typed papers goes up by more than x%. a. Suppose the firm currently employs one secretary and one computer, and this secretary is therefore able to type 2 papers per day. What is the daily marginal product of this first secretary? Given the technology of the firm (as described above), what is the marginal product of the second secretary? Is the marginal product declining? The daily marginal product of the first secretary is 2 papers. The marginal product of any additional secretaries is zero, as each secretary needs their own computer in order to produce anything. b. Now suppose that both a second secretary and a second computer are hired. As a result of specialization, the two secretaries together can now type 5 papers per day. Does this firm have increasing or decreasing returns to scale in the current range of its production function? The firm has increasing returns to scale. By doubling the inputs, the output is more than doubled. Note that in this example, we have declining marginal products, but increasing returns to scale. This is because marginal product is defined with respect to an individual input, holding other inputs constant. Returns to scale is defined in terms of varying ALL inputs.

The Revenue of a Competitive In perfect competition, average revenue equals the price of the good. Total revenue Average Revenue = = The Revenue of a

The Revenue of a Competitive In perfect competition, average revenue equals the price of the good. Total revenue Average Revenue = = The Revenue of a In this chapter, look for the answers to these questions: What is a perfectly competitive market? What is marginal revenue? How is it related to total and average revenue? How does a competitive firm determine

More information

Market for cream: P 1 P 2 D 1 D 2 Q 2 Q 1. Individual firm: W Market for labor: W, S MRP w 1 w 2 D 1 D 1 D 2 D 2

Market for cream: P 1 P 2 D 1 D 2 Q 2 Q 1. Individual firm: W Market for labor: W, S MRP w 1 w 2 D 1 D 1 D 2 D 2 Factor Markets Problem 1 (APT 93, P2) Two goods, coffee and cream, are complements. Due to a natural disaster in Brazil that drastically reduces the supply of coffee in the world market the price of coffee

More information

Microeconomics and mathematics (with answers) 5 Cost, revenue and profit

Microeconomics and mathematics (with answers) 5 Cost, revenue and profit Microeconomics and mathematics (with answers) 5 Cost, revenue and profit Remarks: = uantity Costs TC = Total cost (= AC * ) AC = Average cost (= TC ) MC = Marginal cost [= (TC)'] FC = Fixed cost VC = (Total)

More information

Chapter 8. Competitive Firms and Markets

Chapter 8. Competitive Firms and Markets Chapter 8. Competitive Firms and Markets We have learned the production function and cost function, the question now is: how much to produce such that firm can maximize his profit? To solve this question,

More information

c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?

c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run? Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm

More information

CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY

CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of -.0. It has a constant marginal cost of $0 per unit and sets a price to maximize

More information

We will study the extreme case of perfect competition, where firms are price takers.

We will study the extreme case of perfect competition, where firms are price takers. Perfectly Competitive Markets A firm s decision about how much to produce or what price to charge depends on how competitive the market structure is. If the Cincinnati Bengals raise their ticket prices

More information

SHORT-RUN PRODUCTION

SHORT-RUN PRODUCTION TRUE OR FALSE STATEMENTS SHORT-RUN PRODUCTION 1. According to the law of diminishing returns, additional units of the labour input increase the total output at a constantly slower rate. 2. In the short-run

More information

Labor Demand. Labor Economics VSE Praha March 2009

Labor Demand. Labor Economics VSE Praha March 2009 Labor Demand Labor Economics VSE Praha March 2009 Labor Economics: Outline Labor Supply Labor Demand Equilibrium in Labor Market et cetera Labor Demand Model: Firms Firm s role in: Labor Market consumes

More information

Review of Production and Cost Concepts

Review of Production and Cost Concepts Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #3 Review of Production and Cost Concepts Thursday - September 23, 2004 OUTLINE OF TODAY S RECITATION 1.

More information

Learning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to:

Learning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Learning Objectives After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Discuss three characteristics of perfectly competitive

More information

I. Output Decisions by Firms

I. Output Decisions by Firms University of Pacific-Economics 53 Lecture Notes #8B I. Output Decisions by Firms Now that we have examined firm costs in great detail, we can now turn to the question of how firms decide how much output

More information

Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013

Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on

More information

Technology, Production, and Costs

Technology, Production, and Costs Chapter 10 Technology, Production, and Costs 10.1 Technology: An Economic Definition 10.1 LEARNING OBJECTIVE Learning Objective 1 Define technology and give examples of technological change. A firm s technology

More information

Econ Dept, UMR Presents. Perfect Competition-- --A Model of Markets

Econ Dept, UMR Presents. Perfect Competition-- --A Model of Markets Econ Dept, UMR Presents Perfect Competition-- --A Model of Markets Starring The Perfectly Competitive Firm Profit Maximizing Decisions In the Short Run In the Long Run Featuring An Overview of Market Structures

More information

Chapter 7. Costs. C = FC + VC Marginal cost MC = C/ q Note that FC will not change, so marginal cost also means marginal variable cost.

Chapter 7. Costs. C = FC + VC Marginal cost MC = C/ q Note that FC will not change, so marginal cost also means marginal variable cost. Chapter 7. Costs Short-run costs Long-run costs Lowering costs in the long-run 0. Economic cost and accounting cost Opportunity cost : the highest value of other alternative activities forgone. To determine

More information

Chapter 5 The Production Process and Costs

Chapter 5 The Production Process and Costs Managerial Economics & Business Strategy Chapter 5 The Production Process and Costs McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. Production Analysis

More information

Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9

Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #2 must be completed within the allocated time (i.e., between

More information

The table below shows the prices of the only three commodities traded in Shire.

The table below shows the prices of the only three commodities traded in Shire. Economics 101 Fall 2012 Homework #4 Due 11/20/2012 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework (legibly).

More information

Monopoly and Monopsony Labor Market Behavior

Monopoly and Monopsony Labor Market Behavior Monopoly and Monopsony abor Market Behavior 1 Introduction For the purposes of this handout, let s assume that firms operate in just two markets: the market for their product where they are a seller) and

More information

Pre-Test Chapter 25 ed17

Pre-Test Chapter 25 ed17 Pre-Test Chapter 25 ed17 Multiple Choice Questions 1. Refer to the above graph. An increase in the quantity of labor demanded (as distinct from an increase in demand) is shown by the: A. shift from labor

More information

Unit 5.3: Perfect Competition

Unit 5.3: Perfect Competition Unit 5.3: Perfect Competition Michael Malcolm June 18, 2011 1 Market Structures Economists usually talk about four market structures. From most competitive to least competitive, they are: perfect competition,

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapter 10 - Output and Costs - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The short run is a period of time in which A)

More information

Chapter 14: Firms in Competitive Markets. Total revenue = price per unit sold number of units sold = p q

Chapter 14: Firms in Competitive Markets. Total revenue = price per unit sold number of units sold = p q Chapter 14: Firms in Competitive Markets Profit and Revenue The firm's goal is to maximize profit. Profit = total revenue - total cost (opportunity cost) Total revenue = price per unit sold number of units

More information

Competitive Firms and Markets

Competitive Firms and Markets Competitive Firms and Markets Lecture 6 Reading: Perlo Chapter 8 August 2015 1 / 76 Introduction We learned last lecture what input combination a rm will use for a given level of output. But exactly how

More information

Econ 101: Principles of Microeconomics

Econ 101: Principles of Microeconomics Econ 101: Principles of Microeconomics Chapter 13 - Perfect Competition and the Supply Curve Fall 2010 Herriges (ISU) Ch. 13 Perfect Competition and Supply Fall 2010 1 / 27 Outline 1 Perfect Competition

More information

THE LABOUR MARKET ECONOMY LEVEL OCCUPATION LEVEL INDIVIDUAL FIRM

THE LABOUR MARKET ECONOMY LEVEL OCCUPATION LEVEL INDIVIDUAL FIRM THE LABOUR MARKET ECONOMY LEVEL OCCUPATION LEVEL INDIVIDUAL FIRM DEMAND FOR LABOUR IS DERIVED DEMAND Derived demand: occurs when the demand for a factor of production arises from the demand for the output

More information

Chapter 9 examines firms under severe competition while chapter 11 illustrates monopoly firms that face no competition.

Chapter 9 examines firms under severe competition while chapter 11 illustrates monopoly firms that face no competition. The Firm and the Industry under erfect Competition The decisions of firms depend on consumer demand and production costs. Yet, they also depend on the behavior, the number, and the size of other firms

More information

N. Gregory Mankiw Principles of Economics. Chapter 13. THE COSTS OF PRODUCTION

N. Gregory Mankiw Principles of Economics. Chapter 13. THE COSTS OF PRODUCTION N. Gregory Mankiw Principles of Economics Chapter 13. THE COSTS OF PRODUCTION Solutions to Problems and Applications 1. a. opportunity cost; b. average total cost; c. fixed cost; d. variable cost; e. total

More information

ECON 600 Lecture 3: Profit Maximization Π = TR TC

ECON 600 Lecture 3: Profit Maximization Π = TR TC ECON 600 Lecture 3: Profit Maximization I. The Concept of Profit Maximization Profit is defined as total revenue minus total cost. Π = TR TC (We use Π to stand for profit because we use P for something

More information

Short-Run Production and Costs

Short-Run Production and Costs Short-Run Production and Costs The purpose of this section is to discuss the underlying work of firms in the short-run the production of goods and services. Why is understanding production important to

More information

Problems on Perfect Competition & Monopoly

Problems on Perfect Competition & Monopoly Problems on Perfect Competition & Monopoly 1. True and False questions. Indicate whether each of the following statements is true or false and why. (a) In long-run equilibrium, every firm in a perfectly

More information

Monopoly. Problem 1 (APT 93, P3) Sample answer:

Monopoly. Problem 1 (APT 93, P3) Sample answer: Monopoly Problem 1 (APT 93, P3) A single airline provides service from City A to City B. a) Explain how the airline will determine the number of passengers it will carry and the price it will charge. b)

More information

Number of Workers Number of Chairs 1 10 2 18 3 24 4 28 5 30 6 28 7 25

Number of Workers Number of Chairs 1 10 2 18 3 24 4 28 5 30 6 28 7 25 Intermediate Microeconomics Economics 435/735 Fall 0 Answers for Practice Problem Set, Chapters 6-8 Chapter 6. Suppose a chair manufacturer is producing in the short run (with its existing plant and euipment).

More information

Chapter 22 The Cost of Production Extra Multiple Choice Questions for Review

Chapter 22 The Cost of Production Extra Multiple Choice Questions for Review Chapter 22 The Cost of Production Extra Multiple Choice Questions for Review 1. Implicit costs are: A) equal to total fixed costs. B) comprised entirely of variable costs. C) "payments" for self-employed

More information

Solution to Selected Questions: CHAPTER 12 MONOPOLISTIC COMPETITION AND OLIGOPOLY

Solution to Selected Questions: CHAPTER 12 MONOPOLISTIC COMPETITION AND OLIGOPOLY Chulalongkorn University: BBA International Program, Faculty of Commerce and Accountancy 900 (Section ) Chairat Aemkulwat Economics I: Microeconomics Spring 05 Solution to Selected Questions: CHAPTER MONOPOLISTIC

More information

Integrating the Input Market and the Output Market when Teaching Introductory Economics

Integrating the Input Market and the Output Market when Teaching Introductory Economics 1 Integrating the Input Market and the Output Market when Teaching Introductory Economics May 2015 Clark G. Ross Frontis Johnston Professor of Economics Davidson College Box 7022 Davidson, NC 28035-7022

More information

Microeconomics Instructor Miller Practice Problems Labor Market

Microeconomics Instructor Miller Practice Problems Labor Market Microeconomics Instructor Miller Practice Problems Labor Market 1. What is a factor market? A) It is a market where financial instruments are traded. B) It is a market where stocks and bonds are traded.

More information

Exam 1. Corn (bushels)

Exam 1. Corn (bushels) ECONOMICS 10-008 Dr. John Stewart Feb. 13, 2001 Exam 1 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet using a No.2 pencil. Please note that

More information

or, put slightly differently, the profit maximizing condition is for marginal revenue to equal marginal cost:

or, put slightly differently, the profit maximizing condition is for marginal revenue to equal marginal cost: Chapter 9 Lecture Notes 1 Economics 35: Intermediate Microeconomics Notes and Sample Questions Chapter 9: Profit Maximization Profit Maximization The basic assumption here is that firms are profit maximizing.

More information

OUTPUT AND COSTS. Chapter. Decision Time Frames

OUTPUT AND COSTS. Chapter. Decision Time Frames Chapter 10 OUTPUT AND COSTS Decision Time Frames Topic: Short Run 1) The short run is a period of time in which A) the quantities of some resources the firm uses are fixed. B) the amount of output is fixed.

More information

MODULE 70: THE MARKETS FOR

MODULE 70: THE MARKETS FOR MODULE 70: THE MARKETS FOR LAND & CAPITAL SCHMIDTY SCHOOL OF ECONOMICS THE PURPOSE OF THIS MODULE IS TO SHOW HOW WE CAN USE SUPPLY AND DEMAND TO MODEL THE MARKETS FOR THE LAND AND CAPITAL INPUTS. Learning

More information

Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect

More information

OVERVIEW. 7. In perfectly competitive markets, wages are determined by supply and demand.

OVERVIEW. 7. In perfectly competitive markets, wages are determined by supply and demand. 15 DEMAND FOR INPUTS OVERVIEW 1. Each firm is involved in two markets, a market for its output and a market for inputs. Decisions the firm makes in one market affect its decisions in the other market.

More information

An increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers.

An increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers. 1. Which of the following would shift the demand curve for new textbooks to the right? a. A fall in the price of paper used in publishing texts. b. A fall in the price of equivalent used text books. c.

More information

COST THEORY. I What costs matter? A Opportunity Costs

COST THEORY. I What costs matter? A Opportunity Costs COST THEORY Cost theory is related to production theory, they are often used together. However, the question is how much to produce, as opposed to which inputs to use. That is, assume that we use production

More information

Employment and Pricing of Inputs

Employment and Pricing of Inputs Employment and Pricing of Inputs Previously we studied the factors that determine the output and price of goods. In chapters 16 and 17, we will focus on the factors that determine the employment level

More information

(Perfect) Competition

(Perfect) Competition (Perfect) Competition (Perfect) Competition The model of perfect competition is based on the following assumptions: (Perfect) Competition The model of perfect competition is based on the following assumptions:

More information

A firm in a competitive market has fixed costs of 20 and the following marginal costs for item #N: Item #

A firm in a competitive market has fixed costs of 20 and the following marginal costs for item #N: Item # Microeconom ics m odule 11: m arginal costs, value, and revenue (practice problem s) ** Exercise 11.1: Shutdown Price A firm in a competitive market has fixed costs of 0 and e following marginal costs

More information

False_ If there are no fixed costs, then average cost cannot be higher than marginal cost for all output levels.

False_ If there are no fixed costs, then average cost cannot be higher than marginal cost for all output levels. LECTURE 10: SINGLE INPUT COST FUNCTIONS ANSWERS AND SOLUTIONS True/False Questions False_ When a firm is using only one input, the cost function is simply the price of that input times how many units of

More information

This assignment will teach you how use marginal analysis in making business and personal decisions and review the fundamentals of graphing.

This assignment will teach you how use marginal analysis in making business and personal decisions and review the fundamentals of graphing. Lab 11 Agricultural and Resource Economics (ARE 201) This lab assignment is worth 100 points. Unless instructed differently, you are to complete the assignment and have it to me by this Thursday at 5:00

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapter 11 Perfect Competition - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Perfect competition is an industry with A) a

More information

Economics 101 Spring 2011 Homework #4 Due Tuesday, March 29

Economics 101 Spring 2011 Homework #4 Due Tuesday, March 29 Economics 101 Spring 2011 Homework #4 Due Tuesday, March 29 Directions: The homework will be collected in a box before the lecture. Staple your homework before handing it in. Please place your name, TA

More information

Profit and Revenue Maximization

Profit and Revenue Maximization WSG7 7/7/03 4:36 PM Page 95 7 Profit and Revenue Maximization OVERVIEW The purpose of this chapter is to develop a general framework for finding optimal solutions to managerial decision-making problems.

More information

Costs of Production and Profit Maximizing Production: 3 examples.

Costs of Production and Profit Maximizing Production: 3 examples. Costs of Production and Profit Maximizing Production: 3 examples. In this handout, we analyze costs and profit maximizing output decisions by looking at three different possible costs structures. Three

More information

DEMAND AND SUPPLY IN FACTOR MARKETS

DEMAND AND SUPPLY IN FACTOR MARKETS Chapter 14 DEMAND AND SUPPLY IN FACTOR MARKETS Key Concepts Prices and Incomes in Competitive Factor Markets Factors of production (labor, capital, land, and entrepreneurship) are used to produce output.

More information

AP Microeconomics Chapter 12 Outline

AP Microeconomics Chapter 12 Outline I. Learning Objectives In this chapter students will learn: A. The significance of resource pricing. B. How the marginal revenue productivity of a resource relates to a firm s demand for that resource.

More information

a. What is the total revenue Joe can earn in a year? b. What are the explicit costs Joe incurs while producing ten boats?

a. What is the total revenue Joe can earn in a year? b. What are the explicit costs Joe incurs while producing ten boats? Chapter 13 1. Joe runs a small boat factory. He can make ten boats per year and sell them for 25,000 each. It costs Joe 150,000 for the raw materials (fibreglass, wood, paint, and so on) to build the ten

More information

Chapter 6 Competitive Markets

Chapter 6 Competitive Markets Chapter 6 Competitive Markets After reading Chapter 6, COMPETITIVE MARKETS, you should be able to: List and explain the characteristics of Perfect Competition and Monopolistic Competition Explain why a

More information

Pre-Test Chapter 20 ed17

Pre-Test Chapter 20 ed17 Pre-Test Chapter 20 ed17 Multiple Choice Questions 1. In the above diagram it is assumed that: A. some costs are fixed and other costs are variable. B. all costs are variable. C. the law of diminishing

More information

1. An economic institution that combines factors of production into outputs for consumers is a(n): A) industry. B) plant. C) firm. D) multinational.

1. An economic institution that combines factors of production into outputs for consumers is a(n): A) industry. B) plant. C) firm. D) multinational. Miami Dade College ECO 2023 Principles of Microeconomics Summer B 2014 Practice Test #3 1. An economic institution that combines factors of production into outputs for consumers is a(n): A) industry. B)

More information

Table of Contents MICRO ECONOMICS

Table of Contents MICRO ECONOMICS economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...

More information

CASE FAIR OSTER PEARSON

CASE FAIR OSTER PEARSON CASE FAIR OSTER PEARSON Publishing as Prentice Hall PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N Prepared by: Fernando Quijano w/shelly Tefft 2of 35 Input Demand: The Labor and Land Markets

More information

AP Microeconomics Unit V: The Factor (Resource) Market Problem Set #5

AP Microeconomics Unit V: The Factor (Resource) Market Problem Set #5 1. /15 2. /20 3. /15 4. /25 Total: /75 Name: Team: AP Microeconomics Unit V: The Factor (Resource) Market Problem Set #5 1. ( /15) Define the term and explain a situation that demonstrates the real world

More information

Answers to Even-Numbered Review Questions

Answers to Even-Numbered Review Questions Answers to Ch. 3 review questions. Multiple choice: 1c, 2a, 3c, 4a, 5c, 6b, 7b, 8d, 9b, 10b, 11d, 12a, 13a, 14b, 15c, 16b, 17a, 18c, 19a, 20d, 21a, 22a, 23c Answers to Even-Numbered Review Questions 2.

More information

Cost of Production : An Example

Cost of Production : An Example University of California, Berkeley Spring 008 ECON 00A Section 0, Cost of Production : An Example What you should get out of this example: Understand the technical derivation of optimal inputs in Cost

More information

CHAPTER 9 MAXIMIZING PROFIT

CHAPTER 9 MAXIMIZING PROFIT CHAPTER 9 MAXIMIZING PROFIT Chapter in a Nutshell In Chapter 8, we hinted at how you might determine whether a firm is making a profit or a loss by comparing the price of a good with its average total

More information

Market structure 1: perfect competition

Market structure 1: perfect competition Market structure 1: perfect competition 1. Definition of profit 2. Conditions for profit maximization - general 3. Definition of perfect competition 4. SR supply curve - firm, market 5. SR market equilibrium

More information

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot

More information

Sample Exam According to Figure 6.1, A. Soup is a normal good C. Soup is a Giffen good B. Soup is an inferior good D. Bread is an inferior good

Sample Exam According to Figure 6.1, A. Soup is a normal good C. Soup is a Giffen good B. Soup is an inferior good D. Bread is an inferior good Sample Exam 2 1. Suppose the base year for a Lespeyres index is 2001. The value of the index is 1.3 in 2004 and 1.6 in 2006. By how much did the cost of the bundle increase between 2004 and 2006? A..3%

More information

Module 2 Lecture 5 Topics

Module 2 Lecture 5 Topics Module 2 Lecture 5 Topics 2.13 Recap of Relevant Concepts 2.13.1 Social Welfare 2.13.2 Demand Curves 2.14 Elasticity of Demand 2.14.1 Perfectly Inelastic 2.14.2 Perfectly Elastic 2.15 Production & Cost

More information

Econ 101: Principles of Microeconomics

Econ 101: Principles of Microeconomics Econ 101: Principles of Microeconomics Chapter 12 - Behind the Supply Curve - Inputs and Costs Fall 2010 Herriges (ISU) Ch. 12 Behind the Supply Curve Fall 2010 1 / 30 Outline 1 The Production Function

More information

Lab #11. Chapter 11 Perfect Competition

Lab #11. Chapter 11 Perfect Competition University of Lethbridge Department of Economics ECON 1010 Introduction to Microeconomics Instructor: Michael G. Lanyi Lab #11 Chapter 11 Perfect Competition 1) Perfect competition occurs in a market where

More information

LECTURE #13: MICROECONOMICS CHAPTER 15

LECTURE #13: MICROECONOMICS CHAPTER 15 LECTURE #13: MICROECONOMICS CHAPTER 15 I. WHY MONOPOLIES ARISE A. Competitive firms are price takers; a Monopoly firm is a price maker B. Monopoly: a firm that is the sole seller of a product without close

More information

Eco 200 Group Activity 4 Key Chap 13 & 14 & 15

Eco 200 Group Activity 4 Key Chap 13 & 14 & 15 Eco 200 Group Activity 4 Key Chap 13 & 14 & 15 Chapter 13: 1. 4 th Edition: p. 285, Problems and Applications, Q4 3 rd Edition: p. 286, Problems and Applications, Q4 a. The following table shows the marginal

More information

MPP 801 Monopoly Kevin Wainwright Study Questions

MPP 801 Monopoly Kevin Wainwright Study Questions MPP 801 Monopoly Kevin Wainwright Study Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The marginal revenue facing a monopolist A) is

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapter 11 Monopoly practice Davidson spring2007 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly industry is characterized by 1) A)

More information

Chapter 7 Production Costs

Chapter 7 Production Costs Chapter 7 Production s MULTIPLE CHOICE Exhibit 1 Production of pizza data Workers Pizzas 1 4 2 1 3 15 4 18 5 19 Exhibit 1 shows the change in the production of pizzas as more workers are hired. The marginal

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MPP 801 Perfect Competition K. Wainwright Study Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Refer to Figure 9-1. If the price a perfectly

More information

Competitive Market Equilibrium

Competitive Market Equilibrium Chapter 14 Competitive Market Equilibrium We have spent the bulk of our time up to now developing relationships between economic variables and the behavior of agents such as consumers, workers and producers.

More information

ECON 202: Principles of Microeconomics. Chapter 11 Firms in Perfectly Competitive Markets

ECON 202: Principles of Microeconomics. Chapter 11 Firms in Perfectly Competitive Markets ECON 202: Principles of Microeconomics Chapter 11 Firms in Perfectly Competitive Markets Firms in Perfectly Competitive Markets 1. Market Structures. 2. Perfectly Competitive Markets. 3. Maximizing Profit

More information

CHAPTER SEVEN THE THEORY AND ESTIMATION OF COST

CHAPTER SEVEN THE THEORY AND ESTIMATION OF COST CHAPTER SEVEN THE THEORY AND ESTIMATION OF COST The production decision has to be based not only on the capacity to produce (the production function) but also on the costs of production (the cost function).

More information

Economics 10: Problem Set 3 (With Answers)

Economics 10: Problem Set 3 (With Answers) Economics 1: Problem Set 3 (With Answers) 1. Assume you own a bookstore that has the following cost and revenue information for last year: - gross revenue from sales $1, - cost of inventory 4, - wages

More information

Labour is a factor of production, and labour, like other factors, such as capital (machinery, etc) are demanded by firms for production purposes.

Labour is a factor of production, and labour, like other factors, such as capital (machinery, etc) are demanded by firms for production purposes. Labour Demand Labour is a factor of production, and labour, like other factors, such as capital (machinery, etc) are demanded by firms for production purposes. The quantity of labour demanded depends on

More information

Practice Questions Week 6 Day 1

Practice Questions Week 6 Day 1 Practice Questions Week 6 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Economists assume that the goal of the firm is to a. maximize total revenue

More information

FRAMINGHAM STATE COLLEGE PRINCIPLES OF MICROECONOMICS PROBLEM SET NUMBER 13

FRAMINGHAM STATE COLLEGE PRINCIPLES OF MICROECONOMICS PROBLEM SET NUMBER 13 FRAMINGHAM STATE COLLEGE PRINCIPLES OF MICROECONOMICS PROBLEM SET NUMBER 13 My Name is? Using the material covered in CHAPTER 18. 1. On a graph for each of a, b, and c: show the effect of each of the following

More information

Microeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions.

Microeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions. Microeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions. Reference: Gregory Mankiw s Principles of Microeconomics, 2 nd edition, Chapter 13. Long-Run

More information

Economics 201 Fall 2010 Introduction to Economic Analysis Problem Set #6 Due: Wednesday, November 3

Economics 201 Fall 2010 Introduction to Economic Analysis Problem Set #6 Due: Wednesday, November 3 Economics 201 Fall 2010 Introduction to Economic Analysis Jeffrey Parker Problem Set #6 Due: Wednesday, November 3 1. Cournot Duopoly. Bartels and Jaymes are two individuals who one day discover a stream

More information

Econ 201 Final Exam. Douglas, Fall 2007 Version A Special Codes 00000. PLEDGE: I have neither given nor received unauthorized help on this exam.

Econ 201 Final Exam. Douglas, Fall 2007 Version A Special Codes 00000. PLEDGE: I have neither given nor received unauthorized help on this exam. , Fall 2007 Version A Special Codes 00000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 201 Final Exam 1. For a profit-maximizing monopolist, a. MR

More information

Market Structure: Perfect Competition and Monopoly

Market Structure: Perfect Competition and Monopoly WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit

More information

Practice Questions Week 8 Day 1

Practice Questions Week 8 Day 1 Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants

More information

Chapter 4. under Per. erfect Competition 4.1 PERFECT COMPETITION: DEFINING FEATURES

Chapter 4. under Per. erfect Competition 4.1 PERFECT COMPETITION: DEFINING FEATURES Chapter 4 The Theory y of the Firm under Per erfect Competition In the previous chapter, we studied concepts related to a firm s production function and cost curves The focus of this chapter is different

More information

D) Marginal revenue is the rate at which total revenue changes with respect to changes in output.

D) Marginal revenue is the rate at which total revenue changes with respect to changes in output. Ch. 9 1. Which of the following is not an assumption of a perfectly competitive market? A) Fragmented industry B) Differentiated product C) Perfect information D) Equal access to resources 2. Which of

More information

Topic 3.1a Short-Run Labour Demand. Professor H.J. Schuetze Economics 370

Topic 3.1a Short-Run Labour Demand. Professor H.J. Schuetze Economics 370 Topic 3.1a Short-Run Labour Demand Professor H.J. Schuetze Economics 370 Labour Demand Let s turn our attention away from employees to focus on the behaviour of employers or firms. Recall that labour demand

More information

Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All

More information

Unit 7: Factor Markets

Unit 7: Factor Markets Unit 7: Factor Markets Factor Market Markets in which the factors of production are bought and sold. A factor input is either land, labor, capital, or entrepreneurship Entrepreneurship is not purchased

More information

C H A P T E R E L E V E N. P e r f e c t c o m p e t i t i o n

C H A P T E R E L E V E N. P e r f e c t c o m p e t i t i o n C H A P T E R E L E V E N P e r f e c t c o m p e t i t i o n Assume for the moment that you have completed your business training and that you are working for some consulting firm. The first assignment

More information

SAMPLE FINAL. Part I - Multiple Choice Questions:

SAMPLE FINAL. Part I - Multiple Choice Questions: Part I - Multiple Choice Questions: SAMPLE FINAL 1. Which of the following is not a characteristic of a perfectly competitive market? a. Firms are price takers. b. Firms have difficulty entering the market.

More information

Chapter 14. Markets for Factor Inputs

Chapter 14. Markets for Factor Inputs Chapter 14 Markets for Factor Inputs Competitive Factor Markets Characteristics 1. Large number of sellers of the factor of production 2. Large number of buyers of the factor of production 3. The buyers

More information

Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis HOSP 2110 (Management Acct) Learning Centre Cost-Volume-Profit Analysis The basic principles of CVP analysis were covered in business math. CVP analysis can be done both graphically, through plotting the

More information