Topic 5 Solutions

Topic 5 Solutions - TOPIC 5 PRACTICE PROBLEMS1 Problem 1....

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TOPIC 5 PRACTICE PROBLEMS 1 Problem 1. Short Run Production and Cost A quarry produces output x of gravel with k = 2 units of capital and s = 1 acre of land. Labor (h) is the variable input in the SR. A. Fill in the blanks in Table A and graph the total, average and marginal product curves. Diminishing returns to labor begin at h >= 2 (At h=2, marginal productivity peaks and after that declines) B. Assume capital costs R = $3/unit, land rents at P s = $4/acre, and labor costs W = $6/hour. Table B has SR cost data for the quarry. Fill in the blanks, then graph the total, average and marginal cost curves. C. Diminishing returns to labor begin at h _ 2_ D. Increasing marginal costs begin at x __10____ 1 Some answers provided in boldface . TP Table A – SR Production k s h x p AP h MP h 2 1 0 0 /////// //////// 2 1 1 2 2 2 2 1 2 10 5 8 2 1 3 15 5 5 2 1 4 18 4.5 3 2 1 5 20 4 2 2 1 6 21 3.5 1.0 AP MP Table B – SR Costs x p FC VC TC AFC AVC ATC MC 0 10 0 10 /////// /////// /////// /////// 2
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Topic 5 Solutions - TOPIC 5 PRACTICE PROBLEMS1 Problem 1....

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