Econ 203
| Units of labor | Total product | Marginal product | Product price | Total revenue | Marginal revenue product |
| 0 | 0 | 0 | $2 | $0 | $0 |
| 1 | 17 | 17 | $2 | $34 | $34 |
| 2 | 31 | 14 | $2 | $62 | $28 |
| 3 | 43 | 12 | $2 | $86 | $24 |
| 4 | 53 | 10 | $2 | $106 | $20 |
| 5 | 60 | 7 | $2 | $120 | $14 |
| 6 | 65 | 5 | $2 | $130 | $10 |
At a range of $27.95 to $19.95 wage rate, the company is obliged to hire people at the level where the marginal revenue product per worker exceeds the wage rate. While the wage rate is $27.95 per worker, the company can only hire two people. The first and second workers’ marginal revenue product is above the wage rate. At this rate, the company could not hire more than two workers. On the other hand, if the wage rate was at $19.95, the company can hire a maximum of 4 workers since the fourth worker’s marginal revenue product is above the wage rate as well as the first three. Therefore, the company can only hire a maximum of 4 people at a rate of $19.95 and only hire 2 workers at a rate of $27.95.
Pg. 285 Ch. 13 Problem 4
The marginal product of labor for this job is one acre of land that can be cleared by one worker per month. The value of this unit of labor is $1000. Therefore, the marginal product revenue for hiring one low skilled worker to clear land is $1000 per month.
Each worker works for 120 hours per month to bring in marginal product revenue of $1000. Therefore, the marginal product revenue for each worker is = $1000 / 120 = $8.33 per hour.
Pg. 179 Ch. 8 Problem 1
The average variable cost if derived from dividing variable cost by quantity. The average variable cost using the formula above is $10 for the first 50 units. The price for each product exceeds the average variable cost fro the first 50 units. For the first 100 units, the average variable cost is $17.5 units. The selling price still exceeds the average variable cost of the first 100 units. The marginal cost per unit for the first 50 units is $10, which is the additional cost of producing one extra cost for the first 50 units. For units after 50 and higher, the marginal cost is $25 dollars. For the first 50 units, the marginal revenue exceeds the marginal cost considering the marginal revenue is $20, which is the selling price for each unit while the marginal cost is $10. For the next 50 units the marginal cost is higher than the marginal revenue considering MC is $25 while the MR remains the same. The largest possible output to maximize profit would be the first 50 units that will yield a profit of $400 after subtracting the total costs. If the company produces 100 units, the total costs will be $1850, leaving a profit of $150. Thus, the possible maximum output should be 50 units.
Pg. 193 Ch. 9 Question 7
In a perfect market, all players will earn normal profits. However, many will seek to develop more products in order to reduce cost production methods. The reason is that in such a market, the firms are price takers since none of them is able to influence the marker alone. Thus, suppliers will be willing to supply more at higher prices and supply less at low prices while consumers will buy more at lower prices. The price is set by market equilibrium. Additionally, the marginal revenues will remain the same as the average revenue. Therefore, revenue will increase steadily with increase in sales. Reducing costs of production is the only way to increase the profit of any firm within a purely competitive market.
Pg. 214 Ch. 10 Question 5
Assuming that a pure monopolist and a purely competitive firm have the same unit costs, the prices will be different. Despite the same costs, the pure monopolist will be in a position to charge higher prices than pure competitors will. Additionally, the pure monopoly will have lower output and higher economic profits in both long-term and short-term. In contrast, the pure competitor will have no economic profits in the long run despite having some in the short run. Monopolies do not produce at produce at the minimum average total cost and neither do they do they price at equal level with marginal costs. Thus, its allocation or distribution of resources is complex compared to that of the pure competitors. Monopolies under allocate most of the times. Additionally, the fact that a pure monopoly is able incur economic profits in short run and long run as well unlike pore competitors that incur economic profits in the short run, its distribution of income is not equally spread out unlike in the pure competition.
For pure competitors, the MR is equated to price since a single firm has no influence over price. It can only sell as much as it can under the price set by the market supply and demand. On the other hand, a purely monopolistic firm is the industry as well, and can influence the price. Since no other supplier or producer is available, it control price by increasing or decreasing out put. At high output, the price reduces while it increases at increases with lower output. Thus, MR for purely competitive firms is lower than price, which makes it higher than that of the pure competitors. The differences between pure monopolistic and pure competition can be defined by the fact that pure monopolies are the industry, while pure competitors are small firms within an industry incapable of influencing the market individually. The implication for cost differences within the two types of competition is that pure competition is able to earn abnormal profits in the long run while pure competition earns profits in the short run.
Pg. 193 Ch. 9 Question 9
There is no difference between a generic drug and its brand-patented name chemically. The difference occurs in the market where the patented name is a brand, which consumers are more compassionate about than the generic drug. However, when the generic drug is made available, the price of the brand name drug has to reduce in response to the competition. The patent grants the brand name drug monopolistic power since there is no other producer of the drug until it the patent expires. This allows the company to charge higher prices above the marginal cost. However, as competition creeps in, production increases, resulting in a convergence of marginal costs.
Pg. 239 Ch. 11 Question 6
Oligopolies exist for several reasons with the main one being economies of scale enjoyed. Oligopolies are large few firms within an industry that are able to produce for mass consumers. Their size enables economies of scale. Additionally, they are able to block new entrants using several strategies such as heavy advertising and differentiation which new or small firms might not be able to offer. More so, the heavy costs involved make it hard for new rivals. Some of the examples include the telecommunication industry, automobile manufacturers, personal computer makers, courier industry and gasoline. They are distinguished from monopolies by having few firms unlike one in the monopolistic competition. One firm has significant influence on the other firms and competition is mainly based on differentiation.
Pg. 239 Ch. 11 Question 7
- The meaning of a four-firm concentration ratio of 60% is that 60% of sales within an industry are dominated by the largest four firms. A four-firm concentration of 90% means the first four firms control 90% of the sales within the market. one shortcoming is that they are concerned with the whole nation even though some of the markets are localized, imported sales are not included, they do not consider inter-industry competition, and dispersion of sizes among the first four firms are not disclosed.
- Herfindagl index for industry A = (30^2) + (30^2) + (20^2)+ (10^2) + (10^2) = 2,400
Herfindagl index for industry B = (60^2) + (25^2) + (5^2) + (5^2) + (5^2) = 4,300.
Industry A would be more competitive than industry B since there is one firm dominating but two firms control 75% of the market unlike in B where one firm controls 84% of the market sales.
Last Question
| Quantity | Price | Total Revenue | Marginal Revenue / 100 units |
| 400 | $1,000.00 | $400,000.00 | |
| 500 | $1,000.00 | $500,000.00 | $100,000.00 |
| 600 | $1,000.00 | $600,000.00 | $100,000.00 |
Elasticity using the midpoint formula
= (500 – 400) ÷ ($1,200 – $1,000)
((500+400)/2) ((1,200+$1,000)/2)
= (100 ÷ 450) ÷ ($200 ÷ $1100)
= 1.2
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.
[order_calculator]