Chapters 5%2 - Chapters 5 6 Practice B Answers From Textbook(7th edition Chapter 5 page 130 R1 Suppose a farmer is deciding how many acres to spray

This preview shows pages 1–3. Sign up to view the full content.

From Textbook (7 th edition): Chapter 5 page 130, R1: Suppose a farmer is deciding how many acres to spray. The crop duster charges \$7 per acre. The total benefit of spraying is given in the following chart: # of acres sprayed total benefit marginal benefit total cost marginal cost net gain 0 \$0 - \$0 - \$0 1 12 \$12 7 \$7 5 2 22 10 14 7 6 3 30 8 21 7 9 4 37 7 28 7 9 5 42 5 35 7 7 a. Fill in the remaining columns. see above b. Use Method #1 to determine how many acres the farmer should spray. highest net gain - \$9 at 4 acres c. Use Method #2 to determine how many acres the farmer should spray. MB = MC – at 4 acres d. If the crop duster adds a fixed fee of \$5 to come out to the farm, how many acres should the farmer spray? Predict the answer without creating a new chart. Then create a chart to verify your prediction. Total cost increases by \$5 for each acre, but MC does not change. So the farmer should still spray 4 acres, and the net gain will be reduced by \$5 to \$4. e. If the crop duster raises his fixed fee to \$10 per acre, how many acres should the farmer spray? MC is again not affected, but TC increases by \$10 for each acre. At 4 acres, MB = MC but the net gain becomes -\$1. So the farmer should not spray any acres. page 132, #7: Suppose that Pat and Sandy’s restaurant has just installed fancy new décor costing \$10,000. Suppose also that in a distant solar system, there is a planet identical in every way to Earth except that at this planet’s Pat and Sandy’s, the same redecoration cost \$20,000. True or False: Pat and Sandy’s hamburgers will be more expensive in the distant solar system than on Earth. Explain. False. Each firm will produce where MR = MC, which is not affected by fixed costs. If demand for hamburgers is the same on both planets, then the price charged will be the same. Chapter 6 page 164, R8: Define the marginal rate of technical substitution. MRTS – the amount of capital that can be substituted for one unit of labor, holding output constant 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
page 165, R9: What is the relationship between the marginal products of the factors of production and the marginal rate of technical substitution? The MRTS tells how much capital a firm has to hire to maintain a constant output level if one less unit of labor is used. The more productive is that unit of labor (i.e. the higher its marginal product), then the more capital must be hired to replace it. page 165, R11: Explain why firms want to operate at a tangency between an isoquant and isocost. At this tangency, the MRTS equals the ratio of the prices of the inputs, so that a firm gets the same bang for its buck from each of the inputs. page 165, R14: Explain how to derive the firm’s (short-run) total product and total cost curves from the isoquant diagram. How could these curves be affected by a change in the rental rate on capital? How would they be affected by a change in the wage rate of labor? see section 6.3 in book:
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/14/2012 for the course ECON 2243 taught by Professor Henryfors during the Spring '12 term at Abant İzzet Baysal University.

Page1 / 8

Chapters 5%2 - Chapters 5 6 Practice B Answers From Textbook(7th edition Chapter 5 page 130 R1 Suppose a farmer is deciding how many acres to spray

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online