hw. ch 9 1-11

hw. ch 9 1-11 - ECON 203 Microeconomics TA: Ergin Bayrak...

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ECON 203 Microeconomics TA: Ergin Bayrak November 3, 2005 Chapter 9 Homework #1-11 1. Implicit Costs: the opportunity costs of using a firm’s self-owned, self-employed resources. Example foregone interest, foregone rent, foregone wages, foregone entrepreneurial income. Explicit Costs: the monetary payments a firm makes to those who supply labor services, materials, fuel, transportation services, and the like. Example cost of t-shirt material, clerk’s salary, utilities. Explicit costs of attending college: tuition, fees, books, transportation. Implicit costs of attending college: foregone earnings (if decided to get a job), foregone interest. Normal profit is a cost of doing business. The payment you could receive for performing entrepreneurial functions is an implicit cost. Economic profit is not a cost; it is a return in excess of the normal profit that is required to retain the entrepreneur in this particular line of production. If the economic profit is zero, then the entrepreneur is still covering all implicit and explicit costs. 2. Accounting profit: Total sales revenue: 72,000 Clerk’s salary: 12,000 Materials: 20,000 Rent: 5,000 Total Explicit Costs: 37,000 Accounting Profit: 35,000 Economic Profit: Accounting Profit: 35,000 Foregone interest: 4,000 Foregone wages: 15,000 Foregone entrepreneurial income: 3,000 Foregone rent: 5,000 Total implicit costs: 27,000 Economic Profit: 8,000 3. Long-run or short-run adjustments? a. Wendy’s builds a new restaurant long-run b. Acme Steel Corporation hires 200 more production workers short-run c. A farmer increases the amount of fertilizer used on his corn crop short-run d. An Alcoa aluminum plant adds a third shift of workers short-run 4. Inputs of Labor Total Product Marginal Product Average Product 0 0 -- -- 1 15 15 15 2 34 19 17 3 51 17 17
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4 65 14 16.25 5 74 9 14.8 6 80 6 13.33 7 83 3 11.86 8 82 -1 10.25 Graphs: MP rises first, declines, and then ultimately becomes negative because MP is the slope of TP. So when TP is increasing, MP is rising. When TP is increasing but at a decreasing rate, MP is positive but falling; when TP is at a maximum, MP is zero. Finally, when TP decreases, MP is negative. Short-run firm cost curves reflect the law of diminishing marginal returns.
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hw. ch 9 1-11 - ECON 203 Microeconomics TA: Ergin Bayrak...

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