ECON332 Lecture 5: Lecture #5
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1. (65 points total).
a) (5 points) Fill in the Table below.
Number of workers | Units of output | MPN |
0 | 0 | |
1 | 20 | |
2 | 38 | |
3 | 53 | |
4 | 66 | |
5 | 77 | |
6 | 86 | |
7 | 93 |
b. (10 points) Define the marginal product of labor and explain how it relates to the production function (with N on horizontal axis and Y on vertical axis). What shape does a production function typically take and why? Does this production function take the 'typical' shape?
c)(5 points) Assume that you sell your output to Europe for a US price = $10. The exchange rate is this time is $1.07 per Euro. What is the price of your product in Euros? Please round to 2 decimal places.
d) (5 points) You can hire all the workers you want at $80 per worker. Along with the US price = $10, calculate the number of workers that you will hire and the associated profit in REAL terms (as we did in class, we 'assume away' all other costs of production). Please give me the marginal REAL profit of each worker hired and then add them up and that is the total profit in real terms.
e)(5 points) Inflation data in the US is weaker than the Fed would like and thus, expectations change such that the Fed is less likely to raise interest rates. As a result, the new and updated exchange rate is $1.23 per Euro. What has happened to the value of the US dollar and what is the new Euro price of your product, assuming that your American price stays at $10?
f).(5 points) Given the change in conditions you decide to raise the price of your product in US dollar terms so that the Euro price stays the same as it was before the change in the exchange rate (part c above). What is the new US dollar price? Please show all work.
g) (10 points) What has happened to the marginal revenue product (MRPN) for each worker (has it gone up or down?) and why given the change in price? Be sure to define what the marginal revenue product is and what it means in 'laypersons' terms.
h) (10 points) Given that the US$ price of your product has changed, explain how and why you would change your behavior. Please provide the intuition beginning your answer with... at the same level of labor input I am no longer ......... (please be as specific as possible). Again, explain in REAL terms, not nominal terms.
i. (5 points) Calculate the new level of profits in REAL terms given the change in condition including the change in the exchange rate, the change in the US $ price of your product. and the change in your behavior.
j)(5 points) The Fed has had its eye on inflation for a long time and have been disappointed in that inflation has been too low. Is the change in the value the dollar vs the Euro a welcome development for the Fed? Why or why not? Assume that these conditions changed in a similar way for many US firms.
QUESTION 16
Which of the following statements is true?
The administrative costs per dollar are greater for a large loan than a small loan. | ||
The risk on a long-term loan is likely to be less than on a short-term loan, ceteris paribus. | ||
a and b | ||
none of the above |
1 points
QUESTION 17
If the price for loanable funds is less than the return on capital, then firms will
borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital decreases and its return rises. | ||
borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital increases and its return falls. | ||
not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will fall. | ||
not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will rise. |
1 points
QUESTION 18
Economic rent is
the payment a renter pays his or her landlord. | ||
payment in excess of fixed costs. | ||
payment in excess of opportunity costs. | ||
the same as interest if we are discussing a capital good purchase. | ||
none of the above |
1 points
QUESTION 19
Suppose a bank makes a $1,000 loan to you at 5 percent interest when the expected and actual inflation rate are zero percent. Before you pay back the $1,000 principal and $50 interest, the inflation rate increases to 10 percent. Does anyone lose from this situation?
Nobody loses, because the terms were set before the inflation rate increased, and once the terms are set, inflation does not affect the situation. | ||
You lose, because the dollars that you have borrowed are worth more the higher the inflation rate. | ||
The banker loses, because you will be paying back the loan with dollars that are worth less than the dollars you borrowed. | ||
Both the banker and you lose, for the reasons in answers b and c. | ||
There is not enough information to answer the question. |
1 points
QUESTION 20
A change in the expected rate of inflation from 5 percent to 3 percent will
decrease the real interest rate by 2 percentage points. | ||
decrease the real interest rate by 3 percentage points. | ||
increase the nominal interest rate by 2 percentage points. | ||
decrease the nominal interest rate by 2 percentage points. |