homework_2_solutions

# homework_2_solutions - higher 8 workers and produce up to...

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ECON 51 HW#2 SOLUTIONS 1. a) See the Excel file. b) See the Excel file. c) Given those information one can conclude that both labor market and the market for bikes are perfectly competitive. d) See Excel file for the Sheet MR_MRP. Demand for labor will be the part of MRP curve that is below 400. e) The firm will maximize the profits until MC is equal to the MR, which is equal to the price in this case. We see that MR is 75, while MC is increasing. Marginal cost will be 58 when 8 workers are hired, and 116 when 9 workers are hired. Somewhere in between these two points marginal cost starts to increase. Therefore, firm will

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Unformatted text preview: higher 8 workers and produce up to the point where MC and price are equal, since at that point profit of the firm is maximized. f) If MC < AC then AC ↓ If MC = AC then AC min If MC > AC then AC ↑ This is because if MC of producing one more unit is < (>) than AC by producing one more unit AC will decrease (increase). 2. a) Break even b) Perfect competition is considered perfect in the sense that price reflects only and accurately the costs of producing and delivering that good or service, e.g. information in price only reflects the scarcity and difficulty of producing that good or service....
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homework_2_solutions - higher 8 workers and produce up to...

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