ch06_End-of-chapter-question

ch06_End-of-chapter-question - Chapter 6 Perfectly...

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Unformatted text preview: Chapter 6 Perfectly competitive supply: the cost side of the market 5 June 2011 1. Zoe is trying to decide how to divide her time between her job as a wedding photographer, which pays $27 per hour for as many hours as she chooses to work, and as a fossil collector, in which her pay depends both on the price of fossils and the number of them she nds. Earnings aside, Zoe is indi erent between the two tasks, and the number of fossils she can nd depends on the number of hours a day she researches, as shown in the table below. Hours per day Total fossils per day 1 5 2 9 3 12 4 14 5 15 (a) Derive a table with a price in dollar increments from $0 to $30 in the rst column and the quantity of fossils Zoe is willing to supply per day at that price in the second column. Answer: It would be useful to compute the additional fossils collected from an additional hour (so called marginal product or MP) and the implied income earned from spending the additional hour across di erent prices. Income due to the additional hour spent on fossil collection ($) # of Hours TP MP P=$1 P=$2 P=$3 P=$4 P=$5 P=$6 P=$7 P=$8 P=$9 P=$10 1 5 5 5 10 15 20 25 30 35 40 45 50 2 9 4 4 8 12 16 20 24 28 32 36 40 3 12 3 3 6 9 12 15 18 21 24 27 30 4 14 2 2 4 6 8 10 12 14 16 18 20 5 15 1 1 2 $3 4 5 6 7 8 9 10 Note that Zoe can earn $27 for each hour spent on photography. Thus, the cost of spending one hour collecting fossils is $27. Also note that because the data exhibit the diminishing marginal product, the income is also diminishing in the number of hours spent on collecting fossils. • If the price is $1 per fossil, will she spend the rst hour collecting fossils? No. Because the bene t of spending the rst hour collecting fossils is only $5, less than the cost of $27. • If the price is $2 per fossil, will she spend the rst hour collecting fossils? No. Because the bene t of spending the rst hour collecting fossils is only $10, less than the cost of $27. • If the price is $3 per fossil, will she spend the rst hour collecting fossils? No. Because the bene t of spending the rst hour collecting fossils is only $15, less than the cost of $27. • If the price is $4 per fossil, will she spend the rst hour collecting fossils? No. Because the bene t of spending the rst hour collecting fossils is only $20, less than the cost of $27. • If the price is $5 per fossil, will she spend the rst hour collecting fossils? No. Because the bene t of spending the rst hour collecting fossils is only $25, less than the cost of $27. • If the price is $6 per fossil, will she spend the rst hour collecting fossils? Yes. Because the bene t of spending the rst hour collecting fossils is only $30, more than the cost of $27. Will she spend the second hour collecting fossils? No. Because the bene t of spending the second hour collecting fossils is $24, less than the cost of $27....
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This note was uploaded on 03/13/2012 for the course ECON 1001 taught by Professor S.c during the Fall '10 term at HKU.

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ch06_End-of-chapter-question - Chapter 6 Perfectly...

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