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# EFB223 ECONOMICS 2 TUTORIAL ASSESSMENT 2 Please note that BB site will be unavailable from 5.00 pm on Friday, 7 December 2012, until 195 8.00 am on...

Hi I need question 5 Answered fully. Please see attached document for the question. All help would be great.
Thank you

1 EFB223 ECONOMICS 2 TUTORIAL ASSESSMENT 2 Please note that BB site will be unavailable from 5.00 pm on Friday, 7 December 2012, until 8.00 am on Wednesday, 12 December 2012, while an upgrade is taking place. For that reason, your TA2 is due in tutorials on Monday, 10 December 2012. No late submissions or extensions will be allowed. QUESTION 1 Does the law of diminishing returns apply to capital as well as labour? Explain (max 100 words). QUESTION 2 Which of the following news items involves a short-run decision and which involves a long-run decision? Explain (50 words per item). 31 January, 2008: Starbucks will open 750 more stores worldwide. 25 February, 2008: For three hours on Tuesday, Starbucks will shut down every single one of its 7,100 stores so that baristas can receive a refresher course. 2 June, 2008: Starbucks replaces some baristas with vending machines. 18 July, 2008: Starbucks is closing 616 stores that are too close to others. QUESTION 3 The table sets out Sue’s Surfboards’ total product schedule. (a) Draw the total product curve. (b) Calculate the average product of labour and draw the average product curve. (c) Calculate the marginal product of labour and draw the marginal product curve. (d) Over what output range does the firm enjoy the benefits of increased specialisation and division of labour? (e) Over what output range does the firm experience diminishing marginal product of labour? (f) Over what output range does this firm experience an increasing average product of labour but a diminishing marginal product of labour? (g) Explain how it is possible for a firm to experience simultaneously an increasing average product but a diminishing marginal product. Labour (workers per week) Output (surfboards per week) 1 30 2 70 3 120 4 160 5 190 6 210 7 220
2 QUESTION 4 Sue’s Surfboards, in the previous question, hires workers at \$500 a week and its total fixed cost is \$1,000 a week. (a) Calculate total cost, total variable cost, and total fixed cost at outputs 30, 120 and 220 surfboards a week. Plot these points and sketch the short-run total cost curves passing through them. (b) Calculate average total cost, average fixed cost, average variable cost, and marginal cost at outputs of 30, 160 and 220 surfboards a week. Plot these points and sketch the short-run average and marginal cost curves passing through them. (c) Illustrate the connection between Sue’s AP, MP, AVC, and MC curves in graphs and show your costs table with relevant values. QUESTION 5 Part (i): Suppose the price of labour (P L ) is \$2 / unit and the price of capital (P K ) is \$3 /unit. (a) What is the isocost equation? (b) The table below gives the combinations of labour and capital that will produce 100 calculators per hour. Calculate the total cost associated with each combination and record them in the column labelled “Total Cost (i)”. Calculators Labour Capital Total Cost (i) Total Cost (ii) 100 1 5 100 2 3 100 3 2 100 5 1 (c) Which least-cost combination of labour and capital for producing 100 calculators per hour? (d) On a graph, draw the isoquant for the above data as a smooth curve. On the same graph, draw an isocost map conforming to the equation you have written down in (a). Show on your graph that the least-cost combination of labour and capital agrees your answer in (c). Part (ii): Now suppose the price of labour goes up to \$9 and the price of capital rises to \$6 per unit. (a) Write down the new isocost equation. (b) Calculate the total cost of producing 100 calculators for each input combination using these new input prices and record your results in the column labelled “Total Cost (ii)”. (c) What is the least-cost technique now? (d) On your graph, draw an isocost map conforming to the equation you have written down in (part (ii) (a)) and show on your graph that the new least-cost combination agrees your answer in (part (ii)(c)). (e) Compared to part (i), what happened to the price of capital relative to labour in part (ii). What happened to the capital intensity of production as a result of the relative price change of capital?

Q5
a. let E be total expenditure.
2L+ 3K= E b.
calculators L K Tc-i TC-ii 100 1 5 17 39 100 2 3 13 36 100 3 2 12 39 100 5 1 13 51 c. least cost combination is 3L and 2K d. part ii
a. 9L +6K= E b....

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