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# Answers to Assignment Ten.doc

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Ryerson University

Economics

ECN 104

Tom Barbiero

Summer

Description

Answers to Assignment Ten
1. The table below shows the total production a firm will be able to obtain if it
employs varying amounts of factor X while the amounts of the other factors the
firm employs remain constant. Compute the marginal product of each of the
seven units of factor X and enter these figures in the table. Assume the product
the firm produces sells in the market for $3.00 per unit. Compute the total
revenue of the firm at each of the eight levels of output and the marginal revenue
product of each of the seven units of factor X. Enter these figures in the table
below.
Quantity of Marginal
factor X Total Marginal Total revenue
employed product product of X revenue product of X
0 0 $_____
1 24 _____ _____ $_____
2 44 _____ _____ _____
3 60 _____ _____ _____
4 72 _____ _____ _____
5 80 _____ _____ _____
6 84 _____ _____ _____
7 86 _____ _____ _____
On the basis of your computations complete the firm’s demand schedule for
factor X by indicating in the table below how many units of factor X the firm
would employ at the given prices.
Quantity of
Price of X X demanded
$84 _____
72 _____
60 _____
48 _____
36 _____
24 _____
12 _____
6 _____ Quantity of Marginal
factor X Total Marginal Total revenue
employed product product of X revenue product of X
0 0 $0
1 24 24 72 $72
2 44 20 132 60
3 60 16 180 48
4 72 12 216 36
5 80 8 240 24
6 84 4 252 12
7 86 2 258 6
Quantity of
Price of X X demanded
$84 0
72 1
60 2
48 3
36 4
24 5
12 6
6 7
2. Use the following total-product schedule for a factor to answer the next three
questions. Assume that the quantities of other factors the firm employs remain
constant.
Units of Total
factor product
1 12
2 21
3 27
4 32
5 36
(a) If the firm’s product sells for a constant $2 per unit, what is the marginal
revenue product of the third unit of the factor?
(b) If the firm’s product sells for a constant $2 per unit and the price of this
factor is $8, how many units of the factor will the firm employ?
(c) If the firm can sell 12 units of output at a price of $1.00 per unit and 21 units
of output at a price of $0.80 per unit, what is the marginal revenue product of the
second unit of the factor? (a) $12. The third worker increases TP by 6 units. 6 x $2 = $12.
(b) 5 units. The marginal product of the fifth factor is 4 units of output (4 x $2 =
$8). Thus, MRP = $8 and MFC = $8 when the fifth factor is employed.
(c) $4.80. The total revenue from 1 unit of factor is $12.00 (12 x $1.00). The
total revenue with 2 units of factor is $16.80 (21 x $0.80). The difference is the
MRP of the second factor or $4.80.
3. Complete the following table, where L is the units of lLbour, TP is the total
product of labour, ML is the marginal product of labour, P is product price, TR
is total revenue, and MLP is the marginal revenue product of labour.
L TPL MP L P TR MRP L
0 0 $2.00
1 10 _____ 2.00 $_____ $_____
2 19 _____ 2.00 _____ _____
3 27 _____ 2.00 _____ _____
4 34 _____ 2.00 _____ _____
5 40 _____ 2.00 _____ _____
6 45 _____ 2.00 _____ _____
7 49 _____ 2.00 _____ _____
8 52 _____ 2.00 _____ _____
9 54 _____ 2.00 _____ _____
10 55 _____ 2.00 _____ _____
(a) In what type of market is the firm selling its product? How do you know?
(b) Why does the MRP schedule decrease as labour increases?
(c) Complete the following table:
Wage Quantity of
rate workers employed
$16 _____
14 _____
12 _____
10 _____
8 _____
6 _____ L TP L MP L P TR MRP L
0 0 $2.00 ––
1 10 10 2.00 $20 $20
2 19 9 2.00 38 18
3 27 8 2.00 54 16
4 34 7 2.00 68 14
5 40 6 2.00 80 12
6 45 5 2.00 90 10
7 49

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