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PS6_S - METU Department of Economics Econ 101 Introduction...

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1/7 METU Department of Economics Econ 101: Introduction to Economics I Sections 01-02-03 Fall 2011 PROBLEM SET 6 (With Answers) (CHAPTER 7 & Appendix to CHAPTER 7) PART A- PROBLEMS 1. The number of repairs produced by a computer repair shop depends on the number of workers as follows. Assume that all inputs (office space, telephone, utilities) other than labor are fixed in the short-run. a) Add two additional columns to the table, and enter the marginal product (MP L ) and average product (AP L ) for each number of workers. Draw the MP L and AP L curves. # of Workers # of repairs (per week) MP L AP L 0 0 - 0 1 10 10 10 2 22 12 11 3 30 8 10 4 36 6 9 5 40 4 8 6 42 2 7 7 39 -3 5,57 b) Over what range of output are there increasing marginal product of labor? Diminishing returns or diminishing marginal product of labor? Negative marginal product of labor? At first 2 workers, there are increasing marginal product of labor (MP L increases from 10 to 12 units as more workers are hired). At first 2 workers, total output increases at an increasing rate. From 2 to 6 workers there are diminishing returns or diminishing marginal product of labor (MP L decreases from 12 to 8, 8 to 6 units etc. as more workers are hired). Over that range total output increases at a decreasing rate. At seventh worker there is negative marginal product of labor, because MPL of 7th worker is (-3) negative. Total output level decrease from 42 to 39 units when 7th worker employed. c) Over what range of labor input is marginal product greater than average product? What is happening to average product as employment increases over this range? Marginal product is greater than average product for the second worker, and average product rises as these second worker is hired. d) Over what range of labor input is marginal product smaller than average product? What is happening to average product as employment increases over this range? Marginal product is less than average product for the third, fourth, fifth, sixth, and seventh
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2/7 workers. As each of these workers is hired, the average product of labor declines. 2. The following information represents TP, AP, and MP of GUNES INC. a) Fill in the missing entries. # of Labor TP AP MP 0 0 0 - 1 40 40 40 2 110 55 70 3 150 50 40 4 160 40 10 5 165 33 5 6 168 28 3 b) Define the concept of diminishing returns. If increasing amounts of a variable factor are applied to a given quantity of a fixed factor, eventually a situation will be reached in which each additional unit of the variable factor adds less to TP than the previous one did; that is the MP of the variable input will decline. This fact that beyond some point output grows at a diminishing rate with increases in the variable input is known as diminishing returns.
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