Ec1301 Paper
2010/2011 EC1301 Principles of Economics Semester II
Tutorial 3
Short Answer Questions
PRODUCTION TECHNOLOGY AND COST
1. Consider the paddle production example shown in Table 23.2 (see Lecture 3). Compute the short-run average cost for 10 paddles with the following changes. a) Your opportunity cost of work time triples, from $50 to 150. b) The interest rate for invested funds is cut in half, from 10 to 5 percent. c) Labor productivity (the quantity produced by each worker) doubles.
2. Consider the long-run production of shirts. The cost of the indivisible inputs used in the production of shirts is $400 per day. To produce 1 shirt per day, the firm must also spend a total of $5 on other inputs, such as labor, materials, and other capital. For each additional shirt, the firm incurs the same additional cost of $5. a) Compute the average cost for 40 shirts, 100 shirts, 200 shirts and 400 shirts 15, 9, 7, 6 b) Draw the long-run average cost curve for 40 to 400 shirts per day. Price X
15
6
Output 40 400
PERFECT COMPETITION
3. You’ve been hired as an economic consultant by a price-taking firm that produces scarves. The firm already has a factory, so it is operating in the short run. The price of scarves is $9, the hourly wage is $24, and each scarf requires $1 worth of material. The following table shows the relationship between the number of workers and the output of scarves.
Workers | 10 | 11 | 12 | 13 | 14 | 15 | Output | 5 | 29 | 41 | 47 | 50 | 52 | Labor cost | 240 | 264 | 288 | 312 | 336 | 360 | Material cost | 5 | 29 | 41 | 47 | 50 | 52 | Fixed cost | $2 | $2 | $2 | $2 | $2 | $2 | Total cost | 247 | 295 | 331 | 361 | 388 | 414 | Marginal cost | | 2 | | | | |
4. You’ve been hired as an economic consultant by a price-taking firm that produces baseball caps. The firm already has a
Tutorial 3
Short Answer Questions
PRODUCTION TECHNOLOGY AND COST
1. Consider the paddle production example shown in Table 23.2 (see Lecture 3). Compute the short-run average cost for 10 paddles with the following changes. a) Your opportunity cost of work time triples, from $50 to 150. b) The interest rate for invested funds is cut in half, from 10 to 5 percent. c) Labor productivity (the quantity produced by each worker) doubles.
2. Consider the long-run production of shirts. The cost of the indivisible inputs used in the production of shirts is $400 per day. To produce 1 shirt per day, the firm must also spend a total of $5 on other inputs, such as labor, materials, and other capital. For each additional shirt, the firm incurs the same additional cost of $5. a) Compute the average cost for 40 shirts, 100 shirts, 200 shirts and 400 shirts 15, 9, 7, 6 b) Draw the long-run average cost curve for 40 to 400 shirts per day. Price X
15
6
Output 40 400
PERFECT COMPETITION
3. You’ve been hired as an economic consultant by a price-taking firm that produces scarves. The firm already has a factory, so it is operating in the short run. The price of scarves is $9, the hourly wage is $24, and each scarf requires $1 worth of material. The following table shows the relationship between the number of workers and the output of scarves.
Workers | 10 | 11 | 12 | 13 | 14 | 15 | Output | 5 | 29 | 41 | 47 | 50 | 52 | Labor cost | 240 | 264 | 288 | 312 | 336 | 360 | Material cost | 5 | 29 | 41 | 47 | 50 | 52 | Fixed cost | $2 | $2 | $2 | $2 | $2 | $2 | Total cost | 247 | 295 | 331 | 361 | 388 | 414 | Marginal cost | | 2 | | | | |
4. You’ve been hired as an economic consultant by a price-taking firm that produces baseball caps. The firm already has a