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PS6-Answers - METU Department of Economics Econ 101 Fall...

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1 METU Department of Economics Econ 101 Fall 2009 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: # of Workers # of repairs (per week) 0 0 1 8 2 20 3 35 4 45 5 52 6 57 7 60 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. b. Over what range of labor input are there increasing returns to labor? Diminishing returns to labor? Negative returns to labor? 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? 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? Answer: a. # of Workers # of repairs (per week) MP L AP L 0 0 - 0 1 8 8 8 2 20 12 10 3 35 15 11.66 4 45 10 11.25 5 52 7 10.4 6 57 5 9.5 7 60 3 8.57
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2 b. Between 1 and 3 workers, there are increasing returns to labor (MPL increases as more workers are hired). From 3 to 7 workers there are diminishing returns to labor (MPL decreases as more workers are hired). There is no range of employment where returns to labor are negative, because MPL is always positive. c. Marginal product is greater than average product for the second and the third worker, and average product rises as these two workers are hired.
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