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Homework 4 Solutions

# Homework 4 Solutions - Homework 4 Solutions Chapter 7 1...

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Homework 4 Solutions Chapter 7 1. Total revenue is \$50,000 (\$10 * 5,000). The opportunity cost of the capital is 10% of \$100,000 annually or \$10,000. Total cost, including opportunity costs, is \$45,000 for labor plus \$10,000 for capital or \$55,000. Profit is TR-TC or \$50,000 – \$55,000 = – \$5,000. The firm is suffering a \$5,000 loss in economic terms. TR = P * Q = \$10 * 5,000 = \$50,000 TC = Cost of Labor + Opportunity Cost of Capital = \$45,000 + \$10,000 = \$55,000 Profit = TR = TC = \$50,000 - \$55,000 = -\$5,000 4. (a) The marginal product decreases as a single variable factor increases, holding all other factors constant. (b) The table does exhibit diminishing returns because the marginal product of labor falls as labor increases: L TP MP 0 0 1 5 5 2 9 4 3 12 3 4 14 2 5 15 1 12.a Number of Workers (Per Week) Number of Repairs MPL APL 0 0 · · 1 8 8 8.00 2 20 12 10.00 3 35 15 11.67 4 45 10 11.25 5 52 7 10.40 6 57 5 9.50 7 60 3 8.57 (b) Between 1 and 3 workers, there are increasing returns to labor (MPL increases as more workers are hired). From 3 to 7 workers there are diminishing returns to labor (MPL decreases as more workers are hired). There is no range of employment where returns to labor are negative, because MPL is always positive.

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Homework 4 Solutions - Homework 4 Solutions Chapter 7 1...

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