week 7 - Principles of Economics Problem Set for Week 7...

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Principles of Economics Problem Set for Week 7 Due: online 10pm Apr.13, Tuesday I. Choose one answer that fits the best. (4 points each for questions 1-21, total 84 points) Use the following information to answer questions 1 and 2. Joe wants to start his own business. The business he wants to start will require that he purchase a factory that costs $300,000. To finance this purchase, he will use $100,000 of his own money, on which he has been earning 10 percent interest. In addition, he will borrow $200,000, and he will pay 12 percent interest on that loan. 1. For the first year of operation, what is the explicit cost of purchasing the factory? a. $12,000 b. $20,000 c. $24,000 d. $44,000 2. For the first year of operation, what is the opportunity cost of purchasing the factory? a. $10,000 b. $20,000 c. $24,000 d. $34,000 3. One would expect to observe diminishing marginal product of labor when a. crowded office space reduces the productivity of new workers. b. workers are discouraged about the lack of help from other workers. c. only new workers are trained in using the most productive capital. d. union workers are told to reduce their work effort in preparation for a new round of collective bargaining talks. 4. Average total cost equals a. change in total costs divided by quantity produced. b. change in total costs divided by change in quantity produced. c. (fixed costs + variable costs) divided by quantity produced. d. (fixed costs + variable costs) divided by change in quantity produced. 5. In the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used. 6. Of the following characteristics of competitive markets, which are necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same. a. (i) and (ii) only b. (i) and (iii) only c. (ii) only d. All are necessary. 7. If the firm finds that its marginal cost is $5, it should
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week 7 - Principles of Economics Problem Set for Week 7...

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