Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 11, Problem 2P
(a)
To determine
The marginal product of Arabica Alley, Barista Bar, and Coffee Café.
(b)
To determine
The allocation of workers with the intent to maximize total coffee production in a planned economy.
(c)
To determine
The total coffee production and equilibrium wage in a decentralized economy.
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Question 14
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Suppose that you are starting up a lawn-raking business. All of your workers are required to supply their own rakes, so the only cost to you is hiring
labor at an hourty rate. Suppose that the market price of raking someone's yard is $50 per lawn and the hourly wage is $25 per hour. The following
graph shows the production function (PF) for your business.
On the following graph, use the green line (triangle symbol) to plot the daily isoprofit curve that indicates the profit-maximizing level of output. (Hint:
Derive the slope of the isoprofit curve and then move the curve up or down until it's in the position you warnt; this is because you do not know the
amount of profit that will yield the desired curve.) Then use the black point (plus symbol) to indicate the profit-maximizing level of labor and output
per day.
Note: You will not be graded on any adjustments made to the graph.
100
90
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FF
20
LABOR Hours per day
LAWNS RAKED PER DAY
Isoquant curves and isocost curves are tools that can explain how a firm might best respond to changes in the production environment. Present an example of an isocost curve where labor and capital are the two inputs, and explain what it is using language someone not trained in economics could understand. Present an example of an isoquant in the same diagram you used for your isocost curve, and draw the isoquant so it cuts the isocost curve twice. Explain what an isoquant is using language someone not trained in economics could understand. Label the two points A and B, where the isocost and isoquant curves intersect. Present a logical argument that explains why the firm should operate neither at point A nor point B, and present a point that would be optimal by drawing a new isoquant curve in the diagram. Add a second isocost curve to your diagram such that the firm is spending more money on inputs. Add a third isoquant to your diagram to show a firm that would become more capital…
Chapter 11 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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