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 ECON 2106 Principles of Microeconomics

Problem Set 7 mankiw chapter 13

dUE fRIDAY 18:00 february 27, 2009

 

Directions: Print this answer sheet out at your computer. Work individually or in a group with a maximum of three people. A group will submit one answer sheet with each group member’s name at the top. Read each question carefully. Each question has only one correct answer. Place the letter that corresponds to the correct answer alongside the number that corresponds to the question on the problem set on this answer sheet. Turn in only the answer sheet no later than 18:00 of the date indicated above.

 

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ECON 2106 Principles of Microeconomics

Problem Set 7 mankiw chapter 13

dUE fRIDAY 18:00 february 27, 2009

 

____               1.     An example of an explicit cost of production would be

a.

the cost of forgone labor earnings for an entrepreneur.

b.

the lost opportunity to invest in capital markets when the money is invested in one's business.

c.

lease payments for the land on which a firm’s factory stands.

d.

Both a and c are correct.

 

____               2.     Economic profit

a.

will never exceed accounting profit.

b.

is most often equal to accounting profit.

c.

is always at least as large as accounting profit.

d.

is a less complete measure of profitability than accounting profit.

 

____               3.     Which of the following statements about a production function is correct for a firm that uses labor to produce output?

a.

The production function depicts the relationship between the quantity of labor and the quantity of output.

b.

The slope of the production function measures marginal cost.

c.

The quantity of output determines the maximum amount of labor the firm will hire.

d.

All of the above are correct.

 

Figure 13-2

 

The figure below depicts a total cost function for a firm that produces cookies.

 

____               4.     Refer to Figure 13-2. Which of the following is true of the production function (not pictured) that underlies this total cost function?

(i)

Total output increases as the quantity of inputs increases, but at a decreasing rate.

(ii)

Marginal product is diminishing for all levels of input usage.

(iii)

The slope of the production function decreases as the quantity of inputs increases.

 

a.

(i) only

b.

(ii) and (iii)

c.

(i) and (iii)

d.

All of the above are correct.

 

____               5.     The marginal product of an input in the production process is the increase in

a.

total revenue obtained from an additional unit of that input.

b.

profit obtained from an additional unit of that input.

c.

total revenue obtained from an additional unit of that input.

d.

quantity of output obtained from an additional unit of that input.

Table 13-1

 

Number of Workers

Total Output

Marginal Product

0

0

--

1

 

30

2

 

40

3

 

50

4

 

40

5

 

30

____               6.     Refer to Table 13-1. What is total output when 4 workers are hired?

a.

30

b.

40

c.

120

d.

160

 

____               7.     The total cost curve gets steeper as output increases due to

a.

diseconomies of scale.

b.

economies of scale.

c.

diminishing marginal product.

d.

increasing returns to scale.

Figure 13-3

 

____               8.     Refer to Figure 13-3. Which of the following could explain why the total product curve shifted in this diagram?

a.

A reduction in capital equipment available to the firm.

b.

Labor skills have become rusty and outdated in the firm.

c.

The firm has developed new technology in its production facility.

d.

The firm is now receiving a higher price for its product.

 

____               9.     Average total cost equals

a.

change in total costs divided by quantity produced.

b.

change in total costs divided by change in quantity produced.

c.

(fixed costs + variable costs) divided by quantity produced.

d.

(fixed costs + variable costs) divided by change in quantity produced.

 

____               10.  If marginal cost is rising,

a.

average variable cost must be falling.

b.

average fixed cost must be rising.

c.

marginal product must be falling.

d.

marginal product must be rising.

 

____               11.  Average total cost is very high when a small amount of output is produced because

a.

average variable cost is high.

b.

average fixed cost is high.

c.

marginal cost is high.

d.

marginal product is high.

Figure 13-5

 

 

____               12.  Refer to Figure 13-5. Which of the following can be inferred from the figure above?

(i)

Marginal cost is increasing at all levels of output.

(ii)

Marginal product is increasing at low levels of output.

(iii)

Marginal product is decreasing at high levels of output.

 

a.

(i) and (ii)

b.

(ii) and (iii)

c.

(i) and (iii)

d.

(ii) only

 

Table 13-5

Measures of Cost for ABC Inc. Widget Factory

Quantity

of Widgets

Variable

Costs

Total

Costs

Fixed

Costs

0

 

 

$10

1

$ 1

 

 

2

$ 3

$13

 

3

$ 6

$16

 

4

$10

 

 

5

 

$25

 

6

$21

 

$10

 

____               13.  Refer to Table 13-5. The marginal cost of producing the sixth widget is

a.

$1.00.

b.

$3.50.

c.

$5.00.

d.

$6.00.

 

Table 13-6

Adrian's Premium Chocolates produces boxes of chocolates for its mail order catalogue business. She rents a small room for $150 a week in the downtown business district that serves as her factory. She can hire workers for $275 a week. There are no implicit costs.

 

 

 

Number of Workers

Boxes of

Chocolates Produced per Week

 

Marginal Product

of Labor

 

 

Cost of

Factory

 

Cost

of

Workers

 

Total Cost

of

Inputs

0

  0

 

 

 

 

1

 

330

150

  275

  425

2

630

 

 

 

 

3

 

150

 

  825

  975

4

890

 

 

 

 

5

950

 60

 

1,375

 

6

 

 10

 

 

1,800

____               14.  Refer to Table 13-6. What is the marginal product of the second worker?

a.

110

b.

200

c.

260

d.

300

 

____               15.  Refer to Table 13-6. What is the total cost associated with making 890 boxes of premium chocolates per week?

a.

$1,250

b.

$1,325

c.

$1,400

d.

$1,575

 

Scenario 13-6

Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs.

 

____               16.  Refer to Scenario 13-6. Which of the following statements is (are) true?

(i)

Farmer Jack experiences decreasing marginal product.

(ii)

Farmer Jack's production function is nonlinear.

(iii)

Farmer Jack's total cost curve is linear.

 

a.

(i) only

b.

(i) and (ii)

c.

(ii) only

d.

(i) and (iii)

 

____               17.  Refer to Scenario 13-6. Jack's production function will

a.

Decrease at a decreasing rate.

b.

Decrease at an increasing rate.

c.

Increase at a decreasing rate.

d.

Increase at an increasing rate.

 

____                18.   Which of the following must always be true as the quantity of output increases?

a.

Marginal cost must rise.

b.

Average total cost must rise.

c.

Average variable cost must rise.

d.

Average fixed cost must fall.

 

____               19.  Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that marginal cost when three workers are hired is $40 and the average total cost when three workers are hired is $50. What is the total cost of production when three workers are hired?

a.

$50

b.

$90

c.

$120

d.

$150

 

____               20.  The average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced?

a.

$10

b.

$25

c.

$30

d.

$35

 

Figure 13-8

 

The figure below depicts average total cost functions for a firm that produces automobiles.

 

 

____               21.  Refer to Figure 13-8. This firm experiences diseconomies of scale at what output levels?

a.

output levels above N

b.

output levels between M and N

c.

output levels below M

d.

All of the above are correct, if the firm is operating in the long run.

 

____               22.  Which of the following statements is false?

a.

In the long run, there are no fixed costs.

b.

Marginal cost is independent of fixed costs.

c.

Economies of scale is a short-run concept.

d.

Diminishing marginal product explains increasing marginal cost.

 

The following questions are True-False and deal with chapter 16 in Miller et al. Mark a “T” or an “F” alongside the appropriate question number on the answer sheet.

 

23.   The larger the size of a company the more power it has to control prices, ceteris paribus.

 

24. Since the time of Henry Ford’s first automobile the price of gasoline at the pump when adjusted for inflation has increased ten-fold.

 

25. In the short run, the elasticity of supply for petroleum and petroleum products is very inelastic.