Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 11.A, Problem 4PA
To determine
Isoquant- Isocost line graph
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Ana's Big Burger is a small restaurant that sells hamburgers. For Ana, grills are a fixed input and workers are variable inputs. Assume that labor is
Ana's only variable cost. Ana has a fixed cost of $100 per day and pays each of her workers $100 per day.
Ana's total product schedule and total cost at each level of labor are presented in the following table.
Fill in the blanks to complete the Marginal Physical Product of Labor column for each worker and the Marginal Cost column at each level of labor.
(Hint: Marginal cost is the change in total cost divided by the change in the quantity of output. You can calculate it here by dividing the increase in
total cost from hiring one more worker by the marginal physical product from hiring one more worker.)
Quantity of Labor
(Workers)
0
1
2
3
4
5
Quantity of Output
(Burgers per day)
0
50
150
200
225
235
Marginal Physical Product of Labor
(Burgers per day)
When hiring the first and second workers, Ana's Big Burger faces
Total Cost
(Dollars per…
2.4 Draw the isoquants and find the cost function corresponding to each of the
following production functions:
Case A : q = ²2
Case B : q=0121 + a₂%2
Case C
= q=a1²² +₂²²
Case D : q = min
21
(23)
01 01
where q is output, z₁ and 22 are inputs. a1 and as are positive constants. [Hint:
think about cases D and B first; make good use of the diagrams to help you find
minimum cost.)
1. Explain what the returns to scale are in each of the above cases using the
production function and then the cost function. Hint: check the result on
page 25 to verify your answers/
2. Discuss the elasticity of substitution and the conditional demand for inputs
in each of the above cases.
The following table gives the output achievable for various combinations of inputs. There are only two inputs used in production, labour and capital.
labor input
capital input
1
2
3
4
5
1
20
40
55
60
65
2
40
50
65
70
75
3
55
65
75
80
85
4
60
70
80
90
95
5
65
75
85
95
100
Explain the meaning of an isoquant . Draw the isoquants for the output level of 65 and 75 on the same graph.Define and explain the returns to scale for production with those inputs given above table.
Chapter 11 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 11.A - Prob. 1RQCh. 11.A - Prob. 2RQCh. 11.A - Prob. 3RQCh. 11.A - Prob. 4PACh. 11.A - Prob. 5PACh. 11.A - Prob. 6PACh. 11.A - Prob. 7PACh. 11.A - Prob. 8PACh. 11.A - Prob. 9PACh. 11.A - Prob. 10PA
Ch. 11.A - Prob. 11PACh. 11.A - Prob. 12PACh. 11.A - Prob. 13PACh. 11.A - Prob. 14PACh. 11.A - Prob. 15PACh. 11 - Prob. 11.1.1RQCh. 11 - Prob. 11.1.2RQCh. 11 - Prob. 11.1.3PACh. 11 - Prob. 11.1.4PACh. 11 - Prob. 11.1.5PACh. 11 - Prob. 11.2.1RQCh. 11 - Prob. 11.2.2RQCh. 11 - Prob. 11.2.3RQCh. 11 - Prob. 11.2.4RQCh. 11 - Prob. 11.2.5PACh. 11 - Prob. 11.2.6PACh. 11 - Prob. 11.2.7PACh. 11 - Prob. 11.2.8PACh. 11 - Prob. 11.2.9PACh. 11 - Prob. 11.2.10PACh. 11 - Prob. 11.2.11PACh. 11 - Prob. 11.2.12PACh. 11 - Prob. 11.3.1RQCh. 11 - Prob. 11.3.2RQCh. 11 - Prob. 11.3.3PACh. 11 - Prob. 11.3.4PACh. 11 - Prob. 11.3.5PACh. 11 - Prob. 11.3.6PACh. 11 - Prob. 11.3.7PACh. 11 - Prob. 11.3.8PACh. 11 - Prob. 11.3.9PACh. 11 - Prob. 11.4.1RQCh. 11 - Prob. 11.4.2RQCh. 11 - Prob. 11.4.3RQCh. 11 - Prob. 11.4.4PACh. 11 - Prob. 11.4.5PACh. 11 - Prob. 11.4.6PACh. 11 - Prob. 11.4.7PACh. 11 - Prob. 11.4.8PACh. 11 - Prob. 11.4.9PACh. 11 - Prob. 11.4.10PACh. 11 - Prob. 11.5.1RQCh. 11 - Prob. 11.5.2RQCh. 11 - Prob. 11.5.3PACh. 11 - Prob. 11.5.4PACh. 11 - Prob. 11.5.5PACh. 11 - Prob. 11.5.6PACh. 11 - Prob. 11.5.7PACh. 11 - Prob. 11.5.8PACh. 11 - Prob. 11.5.9PACh. 11 - Prob. 11.6.1RQCh. 11 - Prob. 11.6.2RQCh. 11 - Prob. 11.6.3RQCh. 11 - Prob. 11.6.4RQCh. 11 - Prob. 11.6.5RQCh. 11 - Prob. 11.6.6PACh. 11 - Prob. 11.6.7PACh. 11 - Prob. 11.6.8PACh. 11 - Prob. 11.6.9PACh. 11 - Prob. 11.6.10PACh. 11 - Prob. 11.6.11PACh. 11 - Prob. 11.6.12PACh. 11 - Prob. 11.6.13PACh. 11 - Prob. 11.1CTECh. 11 - Prob. 11.2CTECh. 11 - Prob. 11.3CTECh. 11 - Prob. 11.4CTE
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- What is the difference between a fixed input and a variable input?arrow_forwardUsing the information from the isoquant/isocost diagram to the right and assuming that PL = P = $2, complete the table below. (Enter your responses as integers.) Output Units 100 200 300 Total Cost of Output $100 $ $300 Units of Labor Demanded 25 50 Units of Capital Demanded 4 50 75 Units of capital (K) 200 175- 150- 125- 8100- 75- 50- 25+ 0+ 0 25 50 9=100 9 200 100 125 150 q=300 75 Units of labor (L) 175 200 Q Qarrow_forwardInstructions: Move the slider at the bottom of the diagram to change the quantity of labor hired for both graphs and the table. Move the production slider to 6 units of labor. Suppose you had the information for the L=2 row and the L=6 row, but the row(s) in between them were missing and you didn't have any information in the Marginal Product column. If you wanted to estimate the marginal product, you might assume the marginal products of each of the 4 additional workers are equal. a. Estimate the marginal product of each additional worker if L were to increase from 2 to 6. b. Calculate the slope of the total production function between L=2 and L=6.arrow_forward
- WickCo makes decorative candles, and its production function is given as Q = K+ L, where K is the units of capital, and L is the units of labor used in the production process. a. In the diagram below, draw the isoquant for WickCo. for output level Q = 10. The diagram below is a 10x10 grid b. Suppose the wage rate is $50 per unit of labor and the rental rate of capital is $55 per unit. In the diagram given in part (a), show the cost minimizing input combination for Q = 10 and draw the associated isocost line. What is the total cost of production at the cost minimizing input combination?arrow_forward. Suppose that a firm’s production function is . The cost of a unit of labor is $20 and the cost of a unit of capital is $80. The firm is currently producing 100 units of output, and has determined that the cost-minimizing quantities of labor and capital are 20 and 5 respectively. Graphically illustrate this situation on a graph using isoquants and isocost lines. The firm now wants to increase output to 140 units. If capital is fixed in the short run, how much labor will the firm require? Illustrate this point on your graph and find the new costarrow_forwardIsoquant 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…arrow_forward
- Draw an isoquant-isocost line graph to illustrate the following situation and the change that occurs: Ebba Kantzen can rent pizza ovens for $875 per week and hire workers for $500 per week. Currently, she is using 4 ovens and 7 workers to produce 20,000 pizzas per week and has total costs of $7,000. Then Ebba reorganizes the way things are done in her business and achieves positive technological change. week Use the three-point curved line drawing tool to draw an isoquant curve for 20,000 pizzas per prior to the technological change and an isoquant curve for 20,000 pizzas after the technological change. Properly label the curves. Carefully follow the instructions above, and only draw the required objects. Capital (ovens per week) 20- 18- 16- 14- 12- 8- 4 2- 0- Isocost 0 2 4 6 Labour (workers per week) L 8 10 12 14 16 18 20 22 24 Q Qarrow_forwardWhat does the isoquant map look like if there are 1)continuously increasing returns to scale; 2)continuously decreasing returns to scale? Please illustrate.arrow_forwardLeann's Telecommunication firm production function is given by y(K,L) = 200(KL)2/3 where K is the number of internet servers and L is the number of labor hours she uses. Does this production function exhibit increasing, constant or decreasing returns to scale?. Show your working. Holding the number of internet servers constant at 8, is the marginal product of labor increasing, constant or decreasing as more labor is used?. Show your workingarrow_forward
- Production Total Product Total Fixed Cost Total variable cost Total Cost Average fixed cost Average variable cost Average Total Cost Marginal Cost 0 0 1 25 2 45 3 60 4 70 5 85 6 105 7 135 8 180 9 240 10 315 Assume that fixed costs are $50, labor is the only variable input and its costs are reflected completely in the costs above. Complete the table Graph AFC, AVC, ATC, and MC Explain how increasing returns and decreasing returns are depicted in your graph If the labor input increased by $10 at every unit of production, what would be the effect on your graphs?arrow_forward2. Inputs and outputs Bob's Performance Pizza is a small restaurant in Chicago that sells gluten-free pizzas. Bob's very tiny kitchen has barely enough room for the three ovens in which his workers bake the pizzas. Bob signed a lease obligating him to pay the rent for the three ovens for the next year. Because of this, and because Bob's kitchen cannot fit more than three ovens, Bob cannot change the number of ovens he uses in his production of pizzas in the short run. However, Bob's decision regarding how many workers to use can vary from week to week because his workers tend to be students. Each Monday, Bob lets them know how many workers he needs for each day of the week. In the short run, these workers are inputs, and the ovens are inputs. Bob's daily production schedule is presented in the following table. Fill in the blanks to complete the Marginal Product of Labor column for each worker. Labor Output (Pizzas) Marginal Product of Labor (Pizzas) (Number of workers) 0 70 2 120 3 160…arrow_forward
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