Answers+to+some+selected+exercises+from+the+text.

Answers+to+some+selected+exercises+from+the+text. - Answers...

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Answers to some selected questions from the text Chapter 6 4. You are an employer seeking to fill a vacant position on an assembly line. Are you more concerned with the average product of labor or the marginal product of labor for the last person hired? If you observe that your average product is just beginning to decline, should you hire any more workers? What does this situation imply about the marginal product of your last worker hired? In filling a vacant position, you should be concerned with the marginal product of the last worker hired, because the marginal product measures the effect on output, or total product, of hiring another worker. This in turn determines the additional revenue generated by hiring another worker, which should then be compared to the cost of hiring the additional worker. The point at which the average product begins to decline is the point where average product is equal to marginal product. As more workers are used beyond this point, both average product and marginal product decline. However, marginal product is still positive, so total product continues to increase. Thus, it may still be profitable to hire another worker. 7. Isoquants can be convex, linear, or L-shaped. What does each of these shapes tell you about the nature of the production function? What does each of these shapes tell you about the MRTS? Convex isoquants indicate that some units of one input can be substituted for a unit of the other input while maintaining output at the same level. In this case, the MRTS is diminishing as we move down along the isoquant. This tells us that it becomes more and more difficult to substitute one input for the other while keeping output unchanged. Linear isoquants imply that the slope, or the MRTS, is constant. This means that the same number of units of one input can always be exchanged for a unit of the other input holding output constant. The inputs are perfect substitutes in this case. L-shaped isoquants imply that the inputs are perfect complements, and the firm is producing under a fixed proportions type of technology. In this case the firm cannot give up one input in exchange for the other and still maintain the same level of output. For example, the firm may require exactly 4 units of capital for each unit of labor, in which case one input cannot be substituted for the other. 12. Can a firm have a production function that exhibits increasing returns to scale,
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