Download ECO 100Y INTRODUCTION TO ECONOMICS

Prof. Gustavo Indart
Department of Economics
University of Toronto
ECO 100Y
INTRODUCTION TO ECONOMICS
Problem Set 5
1. You are given the following production function relating the quantity of labour (QL) to
the quantity of output (Q) of good X for fixed K.
QL
Q
0
0
1
25
2
75
3
140
4
195
5
235
6
260
7
270
8
270
9
260
a) Construct a table showing the average product of labour (APL) and the marginal
product of labour (MPL) for each unit of labour.
b) Graph the short run production function, i.e., the total product of labour curve
(TP).
c) Graph the short-run marginal product and average product curve. What is the
quantity of Labour that produces
(i) the maximum marginal product of labour
(ii) the maximum average product of labour
(iii) zero marginal product of labour
(iv) the MPL immediately before the onset of eventually diminishing returns
(v) MPL = APL
2. Answer the following questions:
a) Complete the following table describing the cost situation for a firm producing X.
Output
0
1
2
3
4
5
6
7
8
9
10
11
FC
VC
TC
AFC
AVC
AC
MC
8
7
4
5
2
27
7
41
2
12
89
32
2
b) Plot fixed cost, total variable cost, and total cost.
c) Plot marginal cost, average fixed cost, average variable cost, and average cost
on another diagram. (NB: Locate the marginal cost points midway between
integral outputs, i.e., 1.5, 2.5, etc. For example, treat the difference between the
total cost of producing 1 unit and the total cost of producing 2 units as marginal
cost at an output of 1.5 units.)
3. Draw a firm's marginal cost, average variable cost, average fixed cost, and average
cost curves in a diagram to demonstrate your understanding of their
interrelationship.
4. Consider the fixed, variable, and total costs of a thermal electric power generating
company. How are its TFC, TVC, TC, AFC, AVC, ATC, and MC curves affected by
the following changes?
a) An increase in interest rates.
b) An increase in wages.
c) A decrease in property taxes.
d) An increase in the price of coal, oil, and nuclear fuel.
e) A decrease in the purity of the water it takes in for use in its boilers.
f) Imposition of an excise tax on electricity sales collected by the government from
the company.
g) A tax on plant size to cover the city’s water cleanup costs.
h) Passage of an antipollution law.
i) An increase in premium rates for hazard insurance.