Answer Keys to HW5
Ch 13
4. Here is the table of costs: Workers Output Marginal Product Total Cost Average Total Cost Marginal Cost
0 0 --- $200 --- ---
1 20 20 300 $15.00 $5.00
2 50 30 400 8.00 3.33
3 90 40 500 5.56 2.50
4 120 30 600 5.00 3.33
5 140 20 700 5.00 5.00
6 150 10 800 5.33 10.00
7 155 5 900 5.81 20.00 a. See the table for marginal product. Marginal product rises at first, then declines because of diminishing marginal product.

b. See the table for total cost.

c. See the table for average total cost. Average total cost is U-shaped. When quantity is low, average total cost declines as quantity rises; when quantity is high, average total cost rises as quantity rises.

d. See the table for marginal cost. Marginal cost is also U-shaped, but rises steeply as output increases. This is due to diminishing marginal product.

e. When marginal product is rising, marginal cost is falling, and vice versa. f. When marginal cost is less than average total cost, average total cost is falling; the cost of the last unit produced pulls the average down. When marginal cost is greater than average total cost, average total cost is rising; the cost of the last unit produced pushes the average up.

Ch 14
9. a. If firms are currently incurring losses, price must be less than average total cost. However, because firms in the industry are currently producing output, price must be greater than average variable cost. If firms are maximizing profits, price must be equal to marginal cost.

b. The present situation is depicted in Figure 6. The firm is currently producing q1 units of output at a price of P1.

Figure 6

c. Figure 6 also shows how the market will adjust in the long run. Because firms are incurring losses, there will be exit in this industry. This means that the market supply curve will shift to the left, increasing the