Quiz 2 2010 - Elements of Microeconomics Quiz 2 Prof Bruce...

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Elements of Microeconomics: Quiz 2 Prof. Bruce Hamilton 1. Peter is the owner of a factory that produces laptops. The laptop market is perfectly competitive. Following discribes the relationship between the amount of labour and the amount of laptops they produce. Wage rate is 100$ per worker and price for a laptop is 800$. (a) Fill in the table below. Output Labor TC MC AVC 1 5 2 9 3 12 4 16 5 21 6 27 7 34 (b) Peter decides to employ 7 workers to work in his factory. does this decision maximize his profit? Explain why. (c) Suppose Peter needs to pay 2000$ to set up his factory. Compute the profit from owing this factory. (d) In the short run, is it possible that Peter’s maximum profit is negative? Explain.
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Unformatted text preview: 2. Suppose Mike only lives for two period, today and tomorrow. He has 4 dollars today and will have 6 dollars tomorrow. Interest rate is 0.1. (a) Calculate the present value for the 6 dollars tomorrow. (b) Draw Mike's budget constraint. (c) Suppose the interest rate increases to 0.2, draw Mike's budget constraint. (d) Now Mike has some extra money today, which he can put into the bank to earn an interest rate of 0.2, or can invest in a project with rate of returns of 0.1. Which way is better for Mike, putting money into the bank or invest in the project? Explain why....
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