HW_4 - HOMEWORK IV (DUE MONDAY OCT. 20TH) ANSWER KEY 6.1....

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Unformatted text preview: HOMEWORK IV (DUE MONDAY OCT. 20TH) ANSWER KEY 6.1. The marginal product could well increase for the second and third workers, be- cause each would be able to specialize in a different task. If there is only one worker, that person has to take orders and prepare all the food. With 2 or 3, however, one could take orders and the others could do most of the coffee and food preparation. Eventually, as more workers are employed, the marginal product would diminish, because there would be a large number of people behind the counter and in the kitchen trying to serve more and more customers with a limited amount of equip- ment and a fixed building size. 6.3. See below. Quantity Output Marginal Product Average Product – – 1 225 225 225 2 600 375 300 3 900 300 300 4 1140 240 285 5 1365 225 273 6 1350-15 225 6.5. a. Place part-time workers on the vertical axis and full-time workers on the horizon- tal. The slope of the isoquant measures the number of part-time workers that can be exchanged for a full-time worker while still maintaining output. At the bottom end of the isoquant, at point A, the isoquant hits the full time axis, because it is pos- sible to produce with full-time workers only and no part-timers. As we move up the isoquant and give up full-time workers, we must hire more and more part-time workers to replace each full-time worker. The slope increases (in absolute value) as we move up the isoquant. The isoquant is therefore convex and there is a diminish- ing marginal rate of technical substitution. b. The marginal rate of technical substitution measures the number of units of capital that can be exchanged for a unit of labor while still maintaining output. If the firm can always trade two units of labor for one unit of capital, then then the MRTS of labor for capital is constant and equal to 1/2, and the isoquant is linear....
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This note was uploaded on 11/13/2009 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at Berkeley.

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HW_4 - HOMEWORK IV (DUE MONDAY OCT. 20TH) ANSWER KEY 6.1....

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