ps1 - Economics 102 Introductory Macroeconomics Spring 2005...

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Economics 102 Introductory Macroeconomics - Spring 2005, Professor J. Wissink Problem Set 1 – DUE at the start of class on Monday Feb 7, 2005 Boxes will be removed ten minutes after the start of class. Remember: We will NOT accept problem sets late. Period. Thanks for minding this policy and not asking if you can hand it in late. 1. The small industrial town of Springfield produces two goods: rafts (produced with labor hours and wood) and girders (produced with metal, machinery and labor hours). The production function (in terms of labor, holding all other inputs constant) for each of these outputs is given in the tables below. Springfield has 80 hours of labor, total, to allocate to these two output sectors. a) What is the Marginal Productivity of Labor (MP L ) in the production of Rafts? What is the Marginal Productivity of Labor (MP L ) in the production of Girders? b) Does the “Law of Diminishing Returns” apply in the production function of Rafts? How about in the production of Girders? If you answer affirmatively, indicate where diminishing returns “set in”. c) Graph the production function for rafts and the production function for girders as labor hours vary in each sector. d) Graph the Production Possibilities Frontier (PPF) between rafts and girders. Put Girders on the horizontal axis and rafts on the vertical axis. Assume that all units of measurement are infinitely divisible, so you can smoothly connect points on your graph. e) What is the Total Opportunity Cost of 4 rafts? What is the Marginal Opportunity Cost of the 4 th raft?
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