Pennsylvania State University - ECON 102 Homework 03. Scored 93%.

Pennsylvania State University - ECON 102 Homework 03: Question 1 23.5 / 25 pts (25 total points) Joe runs a farm. He rents the land for $240 a day, and he can hire workers for $10 per day for each worker. His sho ...

Pennsylvania State University - ECON 102 Homework 03: Question 1 23.5 / 25 pts (25 total points) Joe runs a farm. He rents the land for $240 a day, and he can hire workers for $10 per day for each worker. His short run production function is given in the first two columns of the following table. Complete the table below by filling in ALL missing numbers. If your answer is a decimal rather than a whole number, round your answer to the nearest 2 decimal places. Also, do not enter leading zeroes. For example, if the answer to a field is 1/8, enter .13 Do not enter .125 or 0.13 or 0.125 Helpful advice: When filling out large tables, you may want to print the table and fill it out by hand. Then, type in the numbers when completed with your work. In addition, this will give you a completed table to view when answering the problems below the table. This practice is strongly recommended. Question 2 3 / 3 pts In the table you just filled out, find where diminishing marginal productivity begins. Specifically, which is the first worker to add less marginal output than the previous worker? first worker second worker third worker Correct! fourth worker fifth worker sixth worker Question 3 3 / 3 pts According to the table (and general theory), what is true? the highest MP is associated with the highest MC Correct! the highest MP is associated with the lowest MC the lowest MP is associated with the lowest MC the lowest MC is associated with the lowest ATC Question 4 2 / 2 pts For the following 6 questions, refer to the table you filled out above. Plot the labor input (workers) against the output. Put the labor input on the horizontal axis and the output on the vertical axis. What is the general shape of this function? an upward sloping line an upward sloping function that gets steeper as a lot of workers are hired Correct! an upward sloping function that gets shallower as a lot of workers are hired a symmetrical parabola a downward sloping line Question 5 0 / 2 pts Plot the labor input (workers) against the MP (marginal product). Put the labor input on the horizontal axis and the MP on the vertical axis. What is the general shape of this function? Correct Answer It is a hill-shaped function (goes up, peaks, then falls) You Answered It is a valley-shaped function (goes down, bottoms out, then rises) It is a horizontal line It is an upward sloping function It is a downward sloping function Question 6 2 / 2 pts Plot the output against the TVC (total variable cost). Put the output on the horizontal axis and the TVC on the vertical axis. What is the general shape of this function? It is a hill-shaped function (goes up, peaks, then falls) It is a valley-shaped function (goes down, bottoms out, then rises) It is a horizontal line Correct! It is an upward sloping function It is a downward sloping function Question 7 0 / 2 pts Plot the output against the TC (total cost). Put the output on the horizontal axis and the TC on the vertical axis. What is the general shape of this function? You Answered It is a hill-shaped function (goes up, peaks, then falls) It is a valley-shaped function (goes down, bottoms out, then rises) It is a horizontal line Correct Answer It is an upward sloping function It is a downward sloping function Question 8 0 / 2 pts Plot the output against the TFC (total fixed cost). Put the output on the horizontal axis and the TFC on the vertical axis. What is the general shape of this function? It is a hill-shaped function (goes up, peaks, then falls) You Answered It is a valley-shaped function (goes down, bottoms out, then rises) Correct Answer It is a horizontal line It is an upward sloping function It is a downward sloping function Question 9 0 / 2 pts Plot the output against the AFC (average fixed cost). Put the output on the horizontal axis and the AFC on the vertical axis. What is the general shape of this function? It is a hill-shaped function (goes up, peaks, then falls) It is a valley-shaped function (goes down, bottoms out, then rises) You Answered It is a horizontal line It is an upward sloping function Correct Answer It is a downward sloping function Question 10 0 / 2 pts Think about the general relationship between the marginal product of labor (MPL) and the marginal cost of output (MC). As MPL increases, what happens to MC? You Answered MC increases Correct Answer MC decreases MC remains the same Any of the above answers could be correct, depending on the industry Question 11 0 / 2 pts Think about the general relationship between the marginal product of labor (MPL) and the marginal cost of output (MC). As MPL decreases, what happens to MC? Correct Answer MC increases MC decreases You Answered MC remains the same Any of the above answers could be correct, depending on the industry Question 12 0 / 2 pts If the margin is greater than the average, what can we say about the average and margin? The average is at its maximum The average is at its minimum Correct Answer The average is rising You Answered The average is falling The margin is at its maximum The margin is at its minimum The margin is rising The margin is falling Question 13 0 / 2 pts What is the general relationship between AVC, ATC, and MC? the three functions are all valley-shaped, but don’t intersect each other You Answered the three functions are all hill-shaped, but don’t intersect each other the thee functions are all valley-shaped, and AVC = ATC at most output levels Correct Answer the three functions are all valley-shaped, and MC intersects each of the average functions at their minimum. the three functions are all valley-shaped, and there is a single intersection point where MC = AVC = ATC. the three functions are all valley-shaped, and ATC < AVC for most levels of output answers [E] and [F} are both correct Question 14 0 / 2 pts Diminishing marginal returns to labor Will happen immediately at the first worker You Answered Occur only in the long run Are a result of variable capital inputs Are the cause of decreasing returns to scale All of the above Correct Answer None of the above Question 15 0 / 2 pts In the long run, what is true about increasing returns to scale? Increasing returns to scale means that doubling our inputs will result in _________ the output, and the long run average cost curve is ___________. You Answered less than doubling, downward sloping less than doubling, horizontal less than doubling, upward sloping doubling, downward sloping doubling, horizontal doubling, upward sloping Correct Answer more than doubling, downward sloping more than doubling, horizontal more than doubling, upward sloping Question 16 0 / 2 pts In the long run, what is true about constant returns to scale? Constant returns to scale means that doubling our inputs will result in _________ the output, and the long run average cost curve is ___________. less than doubling, downward sloping less than doubling, horizontal less than doubling, upward sloping doubling, downward sloping Correct Answer doubling, horizontal You Answered doubling, upward sloping more than doubling, downward sloping more than doubling, horizontal more than doubling, upward sloping Question 17 2 / 2 pts What is considered to be a cause of decreasing returns to scale (also called diseconomies of scale)? high levels of technology Correct! bureaucratic inefficiencies workers organizing and forming unions bulk discounts from the firm buying large amounts of inputs workers slacking off with less supervision Question 18 2 / 2 pts What is an intuitive explanation for increasing returns to scale (also called economies of scale)? Correct! Bigger firms with larger amounts of capital can produce the goods at a lower cost Bigger firms with larger amounts of capital produce the goods at a higher cost Bigger firms pay workers higher wages Firms will always attempt to secure the largest amount of capital Larger firms always have fewer overhead costs Question 19 2 / 2 pts Suppose there is an increased demand for output. How will this affect the demand curve for labor? Correct! The labor demand will shift to the right The labor demand will shift to the left Firms will try to avoid using any labor (if possible) in their production process Firms will try to use as much labor as possible in their production process Question 20 2 / 2 pts Suppose that capital and labor are complements in production. Assume there is an increase in the quantity of capital. How will this affect the demand curve for labor? Correct! The labor demand will shift to the right The labor demand will shift to the left Firms will try to avoid using any labor (if possible) in their production process Firms will try to use as much labor as possible in their production process Question 21 2 / 2 pts Suppose that capital and labor are complements in production. Assume there is a decrease in the quantity of capital. How will this affect the demand curve for labor? The labor demand will shift to the right Correct! The labor demand will shift to the left Firms will try to avoid using any labor (if possible) in their production process Firms will try to use as much labor as possible in their production process Question 22 2 / 2 pts The Marginal Revenue Product of Labor (MRPL) curve is equivalent to: The labor supply curve The wage rate Correct! The labor demand curve The number of workers employed by the firm Question 23 2 / 2 pts A profit-maximizing firm will continue to hire labor inputs as long as it can pay the workers a low wage the workers are very productive the demand for labor is low the demand for the output produced is high Correct! the marginal revenue product is greater than the wage rate Question 24 2 / 2 pts Suppose that capital and labor are substitutes in production. In other words, the firm can generally use capital or labor to get the production completed. Suppose the cost of capital increases greatly. How will this affect the demand for labor? Correct! The labor demand will shift to the right The labor demand will shift to the left Firms will try to avoid using any labor (if possible) in their production process Firms will try to use as much labor as possible in their production process Question 25 2 / 2 pts Billy is an employee at BigCo. Suppose that at a wage rate of w = $10 per hour, Billy worked 40 hours per week. After Billy gets a raise to a new wage of w = $12, he decides to work 45 hours per week. What can we infer about Billy from this information? His labor demand curve is downward sloping His labor supply curve is downward sloping Billy really enjoys going to work every day Correct! Billy’s substitution effect is greater than the income effect Billy is working extra hours in hopes of getting an even higher wage raise Billy has a perfectly inelastic supply of labor Question 26 2 / 2 pts LeatherTown sells wallets for a price of $50 each. The firm pays its workers $100 per day. How many workers should LeatherTown hire? not enough information to answer this question Question 27 8.5 / 9 pts In this problem, the short run production function is given. In other words, we are able to see the total output that is produced when different amounts of labor inputs are hired. Each output unit produced by this firm is sold at a price of P = $4. Fill out the rest of the table from the given information. Recall that MP = Marginal Product, MRP = Marginal Revenue Product, and TR = Total Revenue. Question 28 14 / 14 pts Having filled out the above table, we now consider the number of workers that will be hired by the profit-maximizing firm. In the table below, fill in Quantity of Labor demanded column. In other words, we are asking the following: How many workers will the firm hire at each wage rate? Wage Quantity of labor demanded