Download 4 - Washington College

ECN 112
PRINCIPLES OF MICROECONOMICS
HOMEWORK 4 (CHAPTER 11) PROBLEMS
DUE: TUESDAY, APRIL 14, 2015
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1. Tommy owns a copier store. He leases two copy machines and pays $12.50 per day for each
of them. The number of machines is fixed. He can hire as many workers as he wants, but he has
to pay $50 per day per worker. These are the only two inputs he uses.
(a) Fill in the table below using the different definitions of costs from class.
Quantity
of
Workers
(L)
0
1
2
3
4
5
6
Quantity
of Copies
per day
(Q)
0
625
1325
2200
2600
2900
3100
Fixed
Costs
(FC)
Variable
Costs
(VC)
Total Cost
(TC)
Average
Total Cost
(ATC)
Marginal
Cost
(MC)
(b) Draw the ATC curve and the MC curve for Tommy’s store. Briefly explain why these curves
have the shape that they do.
2. What are implicit costs? How are they different from explicit costs?
3. (a) Fill in the table below using the definitions from class.
Quantity of Workers
(L)
Total Output
(Q)
0
1
2
3
4
5
6
7
0
400
900
1500
1900
2200
2400
2300
Marginal Product of
Labor
(MPL)
Average Product of
Labor
(APL)
(b) Now draw two graphs. In the first graph, show the relationship between total output
(vertical axis) and quantity of workers hired (horizontal axis). On the second graph, show the
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relationship between total output (vertical axis) and the MPL and APL curves. Your graph
should look like Figure 11.2 on page 358 in the text.
4. Explain why the marginal cost (MC) curve intersects the average total cost (ATC) curve at the
level of output where ATC is at its minimum.
5. From the Appendix. Jill Johnson can rent pizza ovens for r = $400 per week and hire workers
for ω = $200 per week. She is currently using a mix of 5 ovens and 10 workers in order to
produce 20,000 pizzas. Her total costs are $4000. Draw an isoquant-isocost line graph to
illustrate this situation. Make sure your graph shows the cost-minimizing input combination she
is using, and label the maximum quantities of labor and capital she can use with total costs of
$4000.
6. From the Appendix. Consider the following information about Jill Johnson’s pizza restaurant:
Marginal Product of Labor (MPL) = 4000
Marginal Product of Capital (MPK) = 100
Wage rate (ω) = 10
Rental rage (r) = 500
First, is Jill minimizing her costs? If she is not, should she either (1) rent more ovens and hire
fewer workers, or (2) rent fewer ovens and hire more workers? Explain your reasoning for full
points.
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