Solutions(CH13_17) - Answers to selected Problems and...

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1 Answers to selected Problems and Applications Questions in Mankiw Chapter 13: 5. Here is the table of costs: Workers Output Marginal Product Total Cost Average T otal Cost Marginal Cost 0 0 --- $200 --- --- 1 20 20 300 $15.00 $5.00 2 50 30 400 8.00 3.33 3 90 40 500 5.56 2.50 4 120 30 600 5.00 3.33 5 140 20 700 5.00 5.00 6 150 10 800 5.33 10.00 7 155 5 900 5.81 20.00 a. See table for marginal product. Marginal product rises at first, then declines because of diminishing marginal product. b. See table for total cost. c. See table for average total cost. Average total cost is U-shaped. When quantity is low, average total cost declines as quantity rises; when quantity is high, average total cost rises as quantity rises. d. See table for marginal cost. Marginal cost is also U-shaped, but rises steeply as output increases. This is due to diminishing marginal product. e. When marginal product is rising, marginal cost is falling, and vice versa. f. When marginal cost is less than average total cost, average total cost is falling; the cost of the last unit produced pulls the average down. When marginal cost is greater than average total cost, average total cost is rising; the cost of the last unit produced pushes the average up.
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2 11. The following table shows quantity (Q), total cost (TC), and average total cost ( ATC) for the three firms: Firm A Firm B Firm C Quantity TC ATC ATC 1 60 60 11 11 21 21 2 70 35 24 12 34 17 3 80 26.7 39 13 49 16.3 4 90 22.5 56 14 66 16.5 5 100 20 75 15 85 17 6 110 18.3 96 16 106 17.7 7 120 17.1 119 17 129 18.4 Firm A has economies of scale since average total cost declines as output increases. Firm B has diseconomies of scale since average total cost rises as output rises. Firm C has economies of scale for output from 1 to 3, then diseconomies of scale for greater levels of output. Chapter 14: 6. Here s the table showing costs, revenues, and profits: Quantity Total Cost Marginal Cost Total Rev enue Marginal Revenue Profit 0 $ 8 --- $ 0 --- $ -8 1 9 $ 1 8 $ 8 - 1 2 10 1 16 8 6 3 11 1 24 8 13 4 13 2 32 8 19 5 19 6 40 8 21 6 27 8 48 8 21
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3 7 37 10 56 8 19 a. The firm should produce 5 or 6 units to maximize profit. b. Marginal revenue and marginal cost are graphed in Figure 3. The curves cross at a quantity between 5 and 6 units, yielding the same answer as in part (a). c. This industry is competitive since marginal revenue is the same for each quantity. The industry is not in long-run equilibrium, since profit is positive. Figure 3
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4 7. a. Figure 4 shows the short-run effect of declining demand for beef. The shift of the industry demand curve from D1 to D2 reduces the quantity from Q1 to Q2 and reduces the price from P1 to P2. This affects the firm, reducing its quantity from q1 to q2. Before the decline in the price, the firm was making zero profits; afterwards, profits are negative, as average total cost exceeds price. Figure 4
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This note was uploaded on 06/11/2011 for the course ECON 101 taught by Professor Lemche during the Winter '05 term at The University of British Columbia.

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Solutions(CH13_17) - Answers to selected Problems and...

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