econ_101_sp08_Solutions_PS3 - Econ 101 Prof.Schuler Spring...

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Econ 101 Prof.Schuler Spring 2008 PS3 Suggested Solutions Q.1 c.
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d. Consumer’s pay higher price = P’ Consumer’s burden = P’- P Seller’s receive lower price = P’’ Seller’s Burden = P – P’’ e.
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Q.2
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Q.3
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Q.4
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Q.5
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Q.6 Quantity Labor FC TVC TC AFC AVC ATC MC MPL 0 0 450 0 450 -- -- -- -- -- 5 1 450 90 540 90 18 108 18 5 20 2 450 180 630 22.5 9 31.5 6 15 45 3 450 270 720 10 6 16 3.6 25 60 4 450 360 810 7.5 6 13.5 6 15 70 5 450 450 900 6.4 6.4 13 9 10 75 6 450 540 990 6 7.2 13.2 18 5 78 7 450 630 1080 5.7 8.1 13.8 30 3 a .Marginal cost attains its minimum at Q=45, and L=3 b. ATC is at its minimum at Q=70, L=5 c.The law of diminishing returns first occurs with the hiring of the fourth unit of labor since this is the level of labor usage when the MP of labor first increases but at a diminishing rate. d. In the short run, the firm still incurs costs even though its production is equal to zero units because it still has fixed costs. It cannot get rid of its capital instantaneously so it will continue to have these costs even though it is not
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econ_101_sp08_Solutions_PS3 - Econ 101 Prof.Schuler Spring...

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