Economics 201 Microeconomics
Tutorial 5
Question 1:
The following table shows what happens to a firm in terms of additional output (denoted Q) per day for each addition worker (denoted L) that the firm hires. Each additional unit of output can be sold at a flat market price of $20 per unit. Suppose this firm needs to pay all workers a flat payment of $256 a day or $32 per hour for a 8 hour workday. Calculate the average and marginal product for workers at this firm. How many workers should this firm hire? What output is produced? Assuming away all other costs and assuming that labour is the only cost for this firm, what is the firm’s profit per day?
L Q
0 0
1 15
2 32
3 52
4 70
5 85
6 94
7 100
8 104
Question 2:
In 2021, Kane Williamson played 8 games for the IPL franchise Sunrisers Hyderabad. The following table shows the cumulative runs scored over these 8 games. Calculate Williamson’s Average Runs and Marginal Run per game. Graph these to convince yourself that they follow the usual relationship between Average and Marginal Product (marginal is above average when average is rising; marginal is below average when average is falling)
Games Runs
1 20
2 48
3 79
4 106
5 125
6 140
7 150
8 155
Question 3:
Suppose a firm’s production function is given by What kind of returns to scale does this production function exhibit? What if Q = L*K?
Question 4:
A firm buys labour at $50 per unit and capital at $150 per unit. The firm wishes to invest $800,000 in the production process. Suppose the firm’s production function is of the fixed proportions type such that the firm must combine labour and capital in a 1:5 ratio. This implies L:K = 1:5 or L/K = 1/5. This means that the firm will always use 5 times the amount of capital as the amount of labour to produce a particular level of output that is commensurate with the $800,000 outlay. What amount of L and K will this firm choose to utilize?
Question 5:
Suppose the production function for a particular output is given by Q = L*K where L denotes labour and K denotes capital. L costs $50 per unit while K costs $1000 per unit. What is the cost minimizing combination of inputs to produce 1620 units of output?