Professor Chisholm Economics 101F&G April 3, 2013 HOMEWORK #3 DUE DATE: WEDNESDAY, APRIL 10, 2013 This homework assignment is required and will be graded. Only homework submitted at the start of class on the due date will be accepted. You must show all formulas that you use and how you use them. Work problems neatly and in a logical, organized manner. In your graphical analysis, label all axes and graphs. PROBLEM #1 A manufacturing firm faces the following production schedules in the short run, when capital is fixed at 10 machines: Marginal Product Average Product Labor (Hours) Total Product (Output) Of Labor Of Labor 0 0 1 15 2 35 3 65 4 110 5 140 6 150 7 155 8 150 a. Complete the table above. b. Determine the level of labor usage at which diminishing marginal returns set in. c. Briefly explain what happens to marginal productivity when the eighth hour of labor is employed. PROBLEM #2 The following table represents cost information for a firm operating in a perfectly competitive market. In the table, each of the terms is defined as follows: TFC is total fixed cost; TVC represents total variable cost; TC is total cost; MC is marginal cost; AVC is average variable cost; and ATC is average total cost. All costs are measured in dollars. Begin this problem by completing the table.
PROBLEM #2 CONTINUED Output (q) TFC TVC TC MC AVC ATC 0 40.00 0.00 1 40.00 20.00 2 40.00 30.00 3 40.00 35.00 4 40.00 50.00 5 40.00 75.00 6 40.00 110.00 7 40.00 160.00 a. Does the table above represent short-run or long-run costs? Briefly explain your answer. b. Find the quantity at which diminishing marginal returns set in. c. Suppose that the market supply and demand are equilibrating at a price of $25.00. If the firm’s goal is to maximize profits, will the firm choose to operate? If so, which quantity will the firm choose to produce? PROBLEM #3 The graph below represents a firm’s short-run cost curves. Suppose that the price in this market is $16.00. If the firm’s goal is to maximize…