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Problem Set #3

Problem Set #3. Instructions. Put away your pen and pencils Put your name where it says “Graded by:” After grading each question, write in their score in the blank. ex: ( ____/5) Follow the directions explicitly!. Questions #1: Real World Examples 22 Points Total.

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Problem Set #3

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  1. Problem Set #3

  2. Instructions • Put away your pen and pencils • Put your name where it says “Graded by:” • After grading each question, write in their score in the blank. ex: ( ____/5) • Follow the directions explicitly!

  3. Questions #1: Real World Examples 22 Points Total

  4. A. Explicit and Implicit Costs 4 Point Total 1 Point- definition of explicit costs (traditional out of pocket costs) 1 Point- Example showing explicit costs (costs to a firm or a consumer) 1 Point- definition of implicit costs (opportunity costs that a firm or person must “pay” to themselves) 1 Point- Example showing implicit costs (forgone wage, forgone time and effort)

  5. B. Law of Diminishing Marginal Returns 6 Point Total 1 Point- Define Increasing Marginal Returns- MP Rising. TP increasing at an increasing rate. Because Specialization. 1Point- Example 1 Point- Define Decreasing Marginal Returns- MP falling. TP increasing at a decreasing rate. Because fixed resources. 1 Point- Example 1 Point- Define Negative Marginal Returns- MP is negative. TP decreasing. Because workers get in each others way. 1 Point- Example

  6. C. Fixed, Variable, and Total Costs 6 Point Total 1 Point- definition of fixed costs (costs that DO NOT change with the amount produced) 1 Point- Example of a fixed costs/resource 1 Point- definition of variable costs (costs that change with the amount produced) 1 Point- Example of a variable cost/resource 1 Point- definition of total cost (equals fixed plus variable.) 1 Point- Example(Numeric example)

  7. D. Economies of Scale and Diseconomies of Scale 6 Point Total • 1 Point- definition of Economies of Scale (area of LRATC where ATC is decreasing) • 1 Point- Example of Economies of Scale • 1 Point- definition of Constant Returns to Scale (area of LRATC where ATC is constant) • 1 Point- Example of Constant Returns • 1 Point- definition of Diseconomies of Scale (area of LRATC where ATC is increasing) • 1 Point- Example of Diseconomies of Scale

  8. 2.a. Tony’s Hat Store • 2 point for completing the chart • 2 point for completing the graph • 2 point for completing all definitions • 4 points for answering all questions • Each point(s) are ALL or NOTHING

  9. 2.b. “Cost and Competitive Market Supply”

  10. 2.b. Cost and Competitive Market Supply Part A: ½ point each 1. -correctly completing the chart -correctly completing the graph -answer all questions • B. 7, $11, $7, $11, $4, $28 C. 4.5, $11, $6, $11, $5, $22.50 D. 4, $6, loss, $1, loss, $4

  11. Part B: ½ point each • Correctly complete the chart • Between 3 and 4, $6 • Correctly complete the chart • MC, MC, AVC 4A. Correctly complete the chart B. Answer the question C. $8, 6,000 units, positive economic profit D. increase, decrease, increase, decrease E. $6, 4, 2,000 firms, 0, 8,000 units, minimum F & G- Answer the questions

  12. 2.c. MP and MC • 2 points for Explaining that the Marginal Product curve is a mirrored image of the Marginal Cost Curve. As MP increases MC Decreases and as MP decreases, MC increases. • 1 point for stating that the shape of the curves are because of the Law of Diminishing Marginal Returns. • 2 points for showing the MC curve using numerical examples

  13. 3. Cory’s Surfboard Inc. 20 Points Total

  14. 3.The Chart 5 Point Total 1 Point 1 Point 1 Point 1 Point 1 Point

  15. 3. A: Plotted Graph 5 Point Total 1 point- Correctly labeled axis with numbers 1 point- Correctly plotted MC 1 point- Correctly plotted ATC 1 point- Correctly plotted AVC 1 point- Correctly plotted AFV

  16. Question #3B5 point total • 1 point for stating a decrease in the price of an input (styrofoam) will decrease costs (MC decreases or supply increases) • 2 points for stating that a decrease in variable costs will decrease the MC, ATC and AVC curves. • 1 point for stating that a decrease in a fixed input (rent) will NOT change the MC curve • 1 point for stating that a decrease in fixed costs will decrease the ATC and AFC only.

  17. Question 3.C. 5 Point Total 1 point- Output = 6 surfboards 1 point-Correctly placing the MR curve at $90 2 point- About $26.67 Profit per Unit 1 point- Explanation- Cory is selling each unit for $90 and his ATC for the 6th surfboard is $63.33 OR Total Profit equals TR ($540)- TC ($380)= $160 $160 divided by 6 equals $26.67

  18. 4a. In-Class FRQ 12 Points Total

  19. 4a. 2005 FRQ P P Q q Firm MC ATC D=MR

  20. 4a. 2005 FRQ P P P Q q Firm MC ATC D=MR

  21. 4a. 2005 FRQ

  22. 4a. 2005 FRQ

  23. 4a. 2005 FRQ Check that it is UP to ATC

  24. 4a. 2005 FRQ Check that it is UP to ATC

  25. 4a. 2005 FRQ Check that it is UP to ATC

  26. 4a. 2005 FRQ Check that it is UP to ATC

  27. 4a. 2005 FRQ

  28. 4a. 2005 FRQ

  29. 4a. 2005 FRQ

  30. 4a. 2005 FRQ

  31. Hurst and Gax will grade #5 • Grade #’s 6 and 7. • Make sure points are recorded in top left box of template for all questions except for #5.

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