AK7 Fall 2009 v1

AK7 Fall 2009 v1 - Answer Key for Problem Set 7 ECON 211,...

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Answer Key for Problem Set 7 ECON 211, Fall 2009 Due on Friday, October 23 Part 1: Graded Questions Problem 1: 30 points (Krugman Chapter 12 Problem 2) Marty’s Frozen Yogurt is a small shop that sells cups of frozen yogurt in a university town. Marty owns three frozen-yogurt machines. His other inputs are refrigerators, frozen-yogurt mix, cups, sprinkle toppings, and, of course, workers. He estimates that his daily production function when he varies the number of workers employed (and at the same time, of course, yogurt mix, cups, and so on) is as shown in the accompanying table. Quantity of labor Quantity of frozen (workers) yogurt (cups) 0 0 1 110 2 200 3 270 4 300 5 320 6 330 a. (10 points) What are the fixed inputs and variable inputs in the production of cups of frozen yogurt? The fixed inputs are those whose quantities do not change as the quantity of output changes: frozen-yogurt machines, refrigerators, and the shop. The variable inputs are those whose quantities do change as the quantity of output changes: frozen-yogurt mix, cups, sprinkle toppings, and workers. b. (10 points) Draw the total product curve. Put the quantity of labor on the horizontal axis and the quantity of frozen yogurt on the vertical axis. The accompanying diagram illustrates the total product curve.

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c. (10 points) What is the marginal product of the first worker? The second worker? The third worker? Why does marginal product decline as the number of workers increases? The marginal product, MPL, of the first worker is 110 cups. The MPL of the second worker is 90 cups. The MPL of the third worker is 70 cups. The MPL of labor declines as more and more workers are added due to the principle of diminishing returns to labor. Since the number of frozen-yogurt machines is fixed, as workers are added there are fewer and fewer machines for each worker to work with, making each additional worker less and less productive.
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This note was uploaded on 12/07/2009 for the course ECON 211 taught by Professor Na during the Fall '08 term at Rice.

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AK7 Fall 2009 v1 - Answer Key for Problem Set 7 ECON 211,...

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