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SECTION 1: short answers

Read each question carefully before beginning any answers, so that you can decide which

question to answer first. Please make sure that your answer is clear and complete. Label

any diagram carefully, and show all your work. Use full and complete explanations.

1) Complete the following table.

OUTPUT

0

1

2

3

4

5

6

TOTAL

COST($)

60

VARIABLE

COST ($)

FIXED COST

($)

MARGINAL

COST ($)

—————–

10

90

20

80

180

50

2) Suppose that a company produces output according to the following production

function:

Q=0.5L2

a) Define and calculate the marginal product of labor.

b) Define and calculate the average product of labor.

c) Represent marginal and average product of labor graphically on the back.

d) Now assume that the company?s production function is Q=0.5L2K2

The current wage rate is $30 a day and the daily rental rate for one machine is $30 as

well. Determine the capital and labor requirements that will allow the company to

produce a quantity of 8 at the minimum cost.

3. The manager of a meat?packing plant can use either butchers (labor) or meat saws

(capital) to prepare packages of sirloin steak. Based on estimates provided by an

efficiency expert, the firm's production function for sirloin steak is given by

.

a. Graph the isoquant corresponding to 5 units of output.

b. What is the marginal product of capital and labor? Does the answer depend on how

much labor and capital are used?

c. If the price of labor is $2 per hour and the rental price of capital is $3 per hour, how

much capital and labor should be used to minimize the cost of production?

4. Standard Enterprises produces an output that it sells in a highly competitive market at

a price of $100 per unit. Its inputs include two machines (which cost the firm $50 each)

and workers, who can be hired on an as?needed basis in a labor market at a cost of $2,800

per worker. Based on the following production data, how many workers should the firm

employ to maximize its profits?

5. Explain why people in the following occupations are compensated as they are.

a. Insurance agents

b. Football players

c. Authors

d. CEOs of major corporations

e. Food servers

6. Compare the concentration ratio and the Herfindahl-Hirschman Index as alternative

measures of the degree of monopoly prevailing in a given industry. What are the main

advantages of the HHI?

Chapter 5:

1) If labor produces output according to Q=8L1/2, labor costs $10, and output sells for

$100, the optimal level of labor to maximize profits is:

a) 8

b) 16 c)1,600

d) 2

e)10

5) If Hilltop Turf Farm's total cost of producing acres of sod is

TC = 0.2Q2 + 120Q + 5,000, the marginal cost of producing the fiftieth 50th acre of sod is

a) $110.

b) $120.

c) $130.

d) $140.

e) $150.

You have the following long-run production function: TC = 200Q-24Q2 + Q3.

7) What is the output Q of the lowest unit (average) costs?

a) Q = 1

b) Q = 6

c) Q = 12

d) Q = 20

10. Given the Leontief production function Q = min{5.5K, 6.7L}, how much output is

produced when K = 40 and L = 35?

a) 220

b) 234.5

c) 192.5

d) 268

17. In a $ 100 million market, the four largest firms have sales of $40 million, $28

million, $15 million and $5 million, respectively. What is the 4-firm concentration ratio?

a) 15%

b) 40%

b) 88%

d) 100%

18. In a $ 100 million market, the four largest firms have sales of $40 million, $28

million, $15 million and $5 million, respectively. Additionally, the remaining 6 firms all

have sales of $2 million each. What is true?

a.

b.

c.

d.

This industry is likely in monopolistic competition since the HHI is 2658

This industry is likely an oligopoly since the Herfindahl index is 2658

This industry is likely a monopoly since the Herfindahl index is 10,000

This industry is likely in perfect competition since the Herfindhal index is 100