U NIT 8-P ROBLEM SET #7
Chapter 9: Problems 6, 18, 20
Chapter 10: Problems 8, 14, 22, 30
Section C100 C HAPTER 9
The statement is wrong because it does not consider the capital inputs of the firm. Assuming that the workers all
have the same skills, the twelfth worker that is hired can only be less productive than the third if the capital inputs
is the same as the labour inputs.
Profit is the total revenue minus the total cost while rent is the total revenue minus the total variable cost. A firm
would still be interested in staying in the industry even though the profits is zero because it can still operate while
covering its variable costs. It breaks even with the total cost and the total revenue and earns rent as it operates. In
fact, in equilibrium, every firm must earn zero profit.
True. For example, in an oil industry the cost to build and operate an oil pump is fixed. Over time, more and more
units of oil is pumped out, the average costs starts to fall. However, since the cost of the machineries of the pump
is fixed, there still is a constant marginal cost.
C HAPTER 10
False. If the government pays for medical students' tuition then more people could apply for medical schools
because they can afford it. However, whether or not medical schools decides to accept more students is not the
government's decision. Also, the ability of these students to successfully graduate and become doctors also is
independent of the government paying for their tuition. If the medical school accepts more students and these
students actually graduate and become doctors then the supply of doctors would greater, causing the medical
costs to be lower. In the end, the medical costs may be lower, but not because doctors would not need to recoup
their investments, causing the statement to be false.
This statement confuses the difference between chang