Solution to Practice Problems
Chapter 3
1.3
The elasticity of demand is the percentage change in quantity divided by the percentage
change in price:
=
Q p
Q
p
=
.
Q p
p Q
From the demand equation,
Q
p
is 2, so
=
10
2
80
.
= 0.250.
1.5
The elast
Solution to Practice Problems
Chapter 5
Production
2.3
The production function is
q L0.75 K 0.25 .
a. As a result, the average product of labor, holding capital fixed at
APL q / L L 0.25 K 0.25 K / L
0.25
K,
is
.
b. The marginal product of labor is
MPL d
Solution to Practice Problems
Chapter 6
Cost
2.3
a. AFC = 10/q.MC = 10. AVC = 10.AC = 10/q 10.
b. AFC = 10/q. MC = 2q. AVC = q. AC = 10/q q. See the figure below.
c. AFC = 10/q. MC = 10 8q 3q2q2. AVC = 10 4q 2q2. AC = 10/q 10 4q 2q2.
See the figure below.
1. Discuss the relative price elasticity of the following products:
Mayonnaise: This product is inelastic, if the price goes up there is still a
good chance that consumers will continue to purchase because it not does
not take up a large part of the cons
1. Essentially, what do you think are the changing aspects of the economics (i.e., customers,
technology, and competition) of the following industries?
Telecommunications - Technology has been a major factor in the telecommunications
industry. With advanc
1.
(a) This production always displays constant returns to scale.
(b) This production function has decreasing, constant, or increasing returns to scale as
2.
is less than, equal to, or greater than 1.
Calculations are provided in Worksheet 1, spreadsheet
Solution to Practice Problems
Production
2.3
The production function is
q L0.75 K 0.25 .
a. As a result, the average product of labor, holding capital fixed at
APL q / L L 0.25 K 0.25 K / L
0.25
K,
is
.
b. The marginal product of labor is
MPL dq /dL 3 K