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

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