Answers4 - Economics 1 Analysis, Problems, and Polices

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Economics 1 Analysis, Problems, and Polices Name:__________________________________ Problem Set 4 (Due in class on November 5 th , 2007) I. Multiple Choice Questions 1. (1.) c) WHY? We know that P=$2 and MC=$1, so P>MC. That means we are adding more to revenue than we are to costs when we make another unit, so we should increase production. We can also use the information about costs to calculate that AVC=$1 and ATC=$2, meaning we are currently at minimum AVC. A diagram can help convince you that increasing Q to where P=MC will imply making positive profits and staying in business. 2. (1.) c) WHY? By definition, ATC=AVC+AFC and AFC=TFC/Q. We know that ATC=2.50 and AVC=2.00, so that AFC=.50. We also know that TFC=500, so .5=500/Q and Q=500/.5=1000. 3. d) WHY? MC and MP of labor are inversely related. In fact, MC = P L /MP. The relationship between marginal and average has to do with the position of marginal relative to average, not with whether marginal is rising or not. If marginal is above average, average is rising....
View Full Document

This note was uploaded on 05/29/2008 for the course ECON 1 taught by Professor Chang during the Fall '07 term at Dartmouth.

Page1 / 2

Answers4 - Economics 1 Analysis, Problems, and Polices

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online