Principles of Microeconomics (7th Edition) (Case/Fair Economics 7e Series)

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Economics 2302 Principles of Microeconomics Professor McFarlin University of Texas at Dallas Solution to problem Set 4 1. Here’s a table with all the info: L Q MPL APL TVC MC AVC TC AC 0 0 - - $0 - - $60 - 1 30 30 30 40 $1.3 $1.3 100 3.3 2 70 40 35 80 1.0 1.14 140 2.0 3 100 30 33.3 120 1.3 1.2 180 1.8 4 120 20 30 160 2 1.3 220 1.83 5 130 10 26 200 4 1.54 260 2.0 6 135 5 22.5 240 8 1.78 300 2.22 7 140 5 20 280 8 2 340 2.43 8 140 0 17.5 320 - 2.29 380 2.72 a. L first rises, then falls; it begins to fall as diminishing marginal returns to labor set in. The APL also rises, then falls; it hits its maximum when it crosses the MPL schedule; when MPL lies above the APL, the APL is rising; when MPL is less than the APL, the average will be declining. Also, see above table. b. See above Table. c. The MC schedule is inversely related to the MPL: when MPL is rising initially, then the MC curve is falling. When the MPL starts to decline, as diminishing marginal returns set in, then the MC curve starts to rise. The MC curve cuts the AC and AVC at their minima; when MC is less than AC (AVC), then AC (AVC) is being pulled down (falling): when MC is greater than AC (AVC), then AC (AVC) is being pulled up (rising).
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APL L MPL 3 2 1 MPL, APL AC (ATC) 1.30 2.00 30 70 100 Q AVC MC $ 1.00 1.14 40 35 33 30
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2. Use the table prepared for problem #1: a. Find where MR = MC, then verify that MC is rising and that P > AVC (shutdown rule).
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