Econ 201 Homework Assignment 4

Econ 201 Homework Assignment 4

Economics 201 – P.E. Gabriel
Homework Assignment 4 — Fall Semester 2020
Due Date: Wednesday, October 21st, 2020, 6:00 PM (Central Time)

Part I: Multiple Choice (4 points; 1 point each)

Econ 201 Homework Assignment 4

1. Heidi left her job as an executive chef making $40,000 per year to start her own restaurant. This fiscal year, Heidi’s restaurant earned $100,000 in revenue. Heidi pays $50,000 per year in wages to the servers and kitchen staff and $20,000 per year to purchase food and supplies. What is Heidi’s Accounting Profit (Net Income) for the year?

a. b. c. d.

$80,000

$50,000 $30,000 -$10,000

2. Which of the following represents a short-run production adjustment for a firm?
   a. a farmer is planning to purchase additional land for his corn crop.
   b. a U.S. auto manufacturer adds a third shift of workers at one of its assembly

   plants.
   c. a steel manufacturer plans to expand its production facilities.
   d. BMW is considering whether to construct a larger assembly plant in South

   Carolina. Econ 201 Homework Assignment 4

3. The law of diminishing returns states that as increasing amounts of a variable factor are applied to a given quantity of fixed factors
   a. the marginal product of the variable factor will eventually decrease.
   b. the marginal product will eventually increase with average product remaining

   constant.
   c. the marginal product becomes constant. d. total product becomes constant.

4. The table above provides information on costs at Jan’s Bike Shop. Each worker is paid a wage of $100 a day, and labor costs are the only variable costs of production. What is the total cost of producing 50 bikes?
a. $100

b. $200 c. $300 d. $400

Econ 201 Homework Assignment 4

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Part II: Problem (6 points)

1. Assume that a steel manufacturer faces the short-run production shown in the table below, where q is the weekly output (tons of steel) , L is labor (measured by teams of workers), K is capital (number of machines).

a. Complete the table and illustrate graphically the short-run MPl and APl functions for this firm.

b. Assume the firm’s level of capital is 4 units; the market price of labor (w) is $80 per unit and the price of capital (??) is $100 per unit. Given these input prices,

complete the table for short-run costs, and illustrate the firm’s short-run total and per-unit cost functions.

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