HW5_spring08 - shape it does? Question 2 (15 points):...

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HW #5 Economics 304K: Principles of Microeconomics Prof. Meg Ledyard Due Thursday, April 17, 2008 (25 Points total) Remember to type the homework except for charts and graphs. In order to get full credit, you must show all of your work. Homework is due in class on the date listed above. Question 1: (10 points) Suppose that you own a firm that hires workers to make Cheese. You know the following relationship between the number of workers and output: # of Workers Total Output of Cheese in one hour 0 0 1 l 2 6 2 2 0 3 3 2 6 7 4 2 8 7 5 3 0 2 a. (3 points) Calculate the Marginal Product of labor for this firm. b. (2 points) Draw the production function for this firm. It does not have to be exactly to scale, but it should have the correct shape. Why does it have this shape? c. (3 points) Suppose the Cheese factory costs 43 to operate, and labor costs 132 per worker. Calculate the total cost for each of the above number of workers (0-5). d. (2 points) Draw the total cost function for this company. Why does it have the
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Unformatted text preview: shape it does? Question 2 (15 points): Consider a perfectly competitive market for bongo drums. For a representative firm, minimum ATC is $37 at a quantity of 1832, and AVC is $22 at a quantity of 1321. a. (3 points) Suppose that the market price is $5. In a cost curve graph, draw the profits for this market. Are these profits positive or negative? b. (3 points) Now, suppose that the market price is $26. In a new graph, show the new profits. Are these profits positive or negative? c. (3 points) Draw a new graph when the market price is $43. In a new graph, show the new profits. Are the new profits positive or negative? d. (2 point) For which of the above prices ($5, $26, $43) should the firm shutdown? e. (2 point) For which of the above prices should the firm exit? f. (2 points) Suppose that all firms in the industry have the same costs. What is the long run price in the market? What are profits in the long run?...
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