# Eco 550 Week 4 Chp 7 & 8 Checking Your Understandinf

646 words - 3 pages

Chapter 7

1. a. L TPX (=Q) MPX = ΔQ/ΔX APX = Q/X
0 0 --- ---
1 3 3 3.00
2 6 3 3.00
3 16 10 5.33
4 29 13 7.25
5 43 14 8.60
6 55 12 9.17
7 58 3 8.29
8 60 2 7.50
9 59 −1 6.56
10 56 −3 5.60

B.

C. Stage I: 0 − 6 APX is increasing
Stage II: 6+ − 8+ TPX ≥ 0
Stage III: 8+ − ∞ MPX < 0
6. Consider the following short-Run production function (where L=Variable input, Q=output): Q=10L- 0.5L2

A. Q = 10L −0.5L2
= 100-10L
B. 10L = 10
C. L* = 8

8. Based on the production function parameter estimates reported in Table 7.4:

A. Q = 2.5 L.5C.5
L increases by 10% to L' = 1.1L

Q' = 2.5(1.1L).5C.5
Q' ...view middle of the document...

02, %ΔQ = .45 (.02) = .009 (.9%).
C EB = %ΔQ/%ΔB = .30. If %ΔB = −.03, %ΔQ = .30(−.03) = -.009 (-.9%).
D. β1 + β2 + β3 = .45 + .20 + .30 = .95
Decreasing Returns to Scale, due to the sum of the exponents are less than 1.
E. As Technical progress advances it will cause a change in the process used in production over time. An example of this is factory improvement, better machines, capable of more processes and faster production could result in a greater output meaning more garments produced in the same amount of time, this would be true with the number of operators, production cost and factory size remaining the same. Replacement of older machines with newer more efficient ones may have an effect on output as well. Lastly, the training and experience of the workers on the new equipment increases over time as well, this may also create an increase in output even though no new workers have been hired, the number of workers remains constant.
.
Chapter 8

2. A. Accounting profits:
Revenues \$5,000,000
Less: Variable operating costs 4,500,000
Less: Depreciation 40,000
Less: Wages 50,000
Equals: Operating Income \$410,000
Less: Interest expense 400,000
Accounting income before tax +\$10,000
4. Q TC FC VC ATC AFC AVC MC
0 125 125 0 - - - -
10 175 125 50 17.50 12.50 5.00 5.00
20 210 125 85 10.50 6.25 4.25 3.50
30 235 125 110 7.83 4.17 3.67 2.50
40 255 125 130 6.38 3.13 3.25 2.00
50 275 125 150 5.50 2.50 3.00 2.00
60 305 125 180 5.08 2.08 3.00 3.00
70 350 125 225 5.00 1.79 3.21 4.50
80 420 125 295 5.25 1.56 3.69 7.00

6. A. One centralized plant in Missouri:
TC = \$900,000 + (6,000 + 4,500 + 3,000) \$250 = \$4,275,000
Three subassembly plants:
TC = (\$475,000 + \$425,000 + \$400,000) + (6000 + 4500 + 3000) \$225 = \$4,337,500
From the figures above, we see that one centralized plant would be cheaper.

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