Economics Problems
Homework #3:
Question 1. Problem and Application 4 on page 285. Please work on a, b, c, d, and e only. That is, ignore f. When you reconstruct the table in your work, please lower the space for Marginal Product and Marginal Cost by a half step. In other words, the first entries of Marginal Product and Marginal
Cost should be aligned with the second entries of other columns. (50 points)
Table of Costs:
Worker Output Marginal Product Total Cost Average Total Cost Marginal Cost
0 0 -- $200 ------ -----
1 20 20 300 $15.00 $5.00
2 50 30 400 8 3.33
3 90 40 500 5.56 2.50
4 120 30 600 5 3.33
5 140 20 700 5 5
6 150 10 800 5.33 10
7 155 5 900 5.81 20
A. The table shows the marginal product; marginal product rises at first, but then starts to decline because of diminishing marginal product.
B. The table shows the total costs for this scenario.
C. Again, the table shows the average total cost. The average total cost will be shaped like a “U.” The average total cost declines as quantity rises when the quantity is low. When the quantity is high, the average total cost rises.
D. The table shows the marginal cost. The marginal cost, like the average total cost, is also “U” shaped, but unlike the average total cost it rises steeply as the output increases. This is because of diminishing marginal product.
E. When the marginal cost is falling, the marginal product is rising and vice versa.
Question 2. (20 points) The licorice industry is competitive. Each firm produces 2 million strings of licorice per year. The strings have an average total cost of $0.20 each, and they sell for $0.30.
a. What is the marginal cost of a string?
Marginal cost = Change in total cost/change in quantity .30-.20=.10=Change in total cost .10/1=.10 The marginal cost of one string is $0.10.
b. Is this industry in long-run equilibrium? Why or why not? No. In a long
Question 1. Problem and Application 4 on page 285. Please work on a, b, c, d, and e only. That is, ignore f. When you reconstruct the table in your work, please lower the space for Marginal Product and Marginal Cost by a half step. In other words, the first entries of Marginal Product and Marginal
Cost should be aligned with the second entries of other columns. (50 points)
Table of Costs:
Worker Output Marginal Product Total Cost Average Total Cost Marginal Cost
0 0 -- $200 ------ -----
1 20 20 300 $15.00 $5.00
2 50 30 400 8 3.33
3 90 40 500 5.56 2.50
4 120 30 600 5 3.33
5 140 20 700 5 5
6 150 10 800 5.33 10
7 155 5 900 5.81 20
A. The table shows the marginal product; marginal product rises at first, but then starts to decline because of diminishing marginal product.
B. The table shows the total costs for this scenario.
C. Again, the table shows the average total cost. The average total cost will be shaped like a “U.” The average total cost declines as quantity rises when the quantity is low. When the quantity is high, the average total cost rises.
D. The table shows the marginal cost. The marginal cost, like the average total cost, is also “U” shaped, but unlike the average total cost it rises steeply as the output increases. This is because of diminishing marginal product.
E. When the marginal cost is falling, the marginal product is rising and vice versa.
Question 2. (20 points) The licorice industry is competitive. Each firm produces 2 million strings of licorice per year. The strings have an average total cost of $0.20 each, and they sell for $0.30.
a. What is the marginal cost of a string?
Marginal cost = Change in total cost/change in quantity .30-.20=.10=Change in total cost .10/1=.10 The marginal cost of one string is $0.10.
b. Is this industry in long-run equilibrium? Why or why not? No. In a long