Chapter 8 HW-MGNT6005- 1

# Chapter 8 HW-MGNT6005- 1 - Managerial Economics 6005...

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Managerial Economics 6005 Professor Juliet Elu Chapter 8 Assignment Spring 2008 Group’s Members: Mohammad Aladalh Joel Njenga Verda Weekes EL Drame

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Chapter 8 Problems: MGNT 6008, Prof. J. Elu, Spring 2008. P 8.1 Marginal Rate of technical Substitution The following production table provides estimates of the maximum amounts of output possible with different combinations of two input factors, X, and Y. (Assume that these are just illustrative points on a spectrum of continuous input combinations.) Units of Y Used Estimated Output per Day 5 210 305 360 421 470 4 188 272 324 376 421 3 162 234 282 324 360 2 130 188 234 272 305 1 94 130 162 188 210 1 2 3 4 5 Units of X Used A. Do the two inputs exhibit the characteristics of constant, increasing, or decreasing marginal rates of technical substitution? How do you know? The two exhibit a characteristic of decreasing marginal rates. Because according to the table below as value of either X or Y input increases, the marginal product of their inputs decreases. Input Total Product Marginal Px Marginal Rx (when X is held at 2) Qty Y of input (Y) (MPx=dQ/dY) ((MPx(\$3)) \$3 1 130 130 390 2 188 58 174 3 234 46 138 4 272 38 114 5 305 33 99 B. Assuming that output sells for \$3 per unit, complete the following tables: X Fixed at 2 Units Units of Y Used Total Product of Y Marginal Product of Y Average Product of Y Marginal Revenue Product of Y 1 130 +130 130 390 2 188 +58 94 174 3 234 +46 78 138 4 272 +38 68 114 5 305 +33 61 99
Y Fixed at 2 Units Units of X Used Total Product of X Marginal Product of X Average Product of X Marginal Revenue Product of X 1 130 +130 130 390 2 188 +58 94 174 3 234 +46 78 138 4 272 +38 68 114 5 305 +33 61 99 C. Assume that the quantity of X is fixed at 2 units. If output sells for \$3 and the cost of Y is \$120 per day, how many units of Y will be employed? The firm will employ three units of Y because the value gained by adding the first

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Chapter 8 HW-MGNT6005- 1 - Managerial Economics 6005...

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