ECN 3151 Managerial Economics, Spring 2012

Problem set 2

ECN 3151 Managerial Economics, Spring 2012

Due date: March 5, 2011

Solve the following problems from the textbook (Keat, Paul G., and Philip K. Y. Young, 5^th ed.):

1. Chapter 6, problem 2
2. Chapter 6, problem 14
3. Chapter 7, problem 4
4. Chapter 7, problem 13
   
   

		90.625		2537.5	87.5			1737.5	-12.5

Chapter 7, problem 4

Plot them!

That is when Q=10, the marginal cost is at its minimum. Therefore, we can say that at this point marginal product is at maximum. After this point diminishing returns occur.

The same for MC2 and MC3

However, MC2 curve does not have minimum, it increases all the time; thus the marginal product decreases all the time, and so exhibits diminishing returns from the very beginning.

MC3 is a straight horizontal line. We cannot say when there is diminishing returns.

The average cost is minimum at point of intersection with marginal cost

AC3 dos not have minimum because it is always higher than MC3. It will be equal to MC3 only if there were no part of 100/Q.

As it is predicted, AVC<AC because AC=AVC+AFC, and each of them reaches its minimum, when they cross MC curve (plot the figure)

Chapter 7, problem 13

a) Plot this curve for quantities 1 through 15

b)
Plot them on another graph!

c) Discuss your results in terms of decreasing, constant, and increasing marginal costs. Does Big Horn’s cost function illustrate all these?

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