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HOMEWORK 5

MANAGERIAL ECONOMIC ANALYSIS RUTGERS MBA PROGRAM FALL

2015 - NB

PLEASE SELECT ONE ANSWER ONLY IN EACH MULTIPLE CHOICE QUESTION

1. A Decrease in Productivity means:

a) Needing more workers to be able to produce the same amount of a good/service.

b) Producing less amount of a good/service with the same amount of workers.

c) Being able to produce the same amount of a good/service with the same amount of workers

d) a or b

2. An Increase in Productivity will:

a) Raise the Value Marginal Product of abor

b) !ecrease "i#ed $osts

c) !ecrease Variable $ostsd) !ecrease Marginal $ost of abor

3.The Highest Rate o Productivity Increases will ha!!en"

a) !uring $rowding

b) !uring !iminishing Marginal Returns

c) Productivit% is constant in our model

d) !uring &peciali'ation.

#. Average Total Product $AP% will &e 'a(imi)ed:

a) (t the point between &peciali'ation and !iminishing Marginal Returns

b) (t the point that the (verage otal Product function crosses the Marginal Product functionc) (t the level of abor that Ma#imi'es Profit

d) (t the level of abor that Ma#imi'es Revenue

*. The +aw o Diminishing 'arginal Returns states that:

a) he productivit% for each additional worker starts increasing after a certain point because ofthe constraint of fi#ed capital

b) he productivit% for each additional worker remains constant after a certain point because ofthe constraint of fi#ed capital

c) he productivit% for each additional worker starts declining after a certain point because ofthe constraint of fi#ed capital

d) he productivit% for each additional worker starts declining after a certain point because oflack of cross*training

,. I you raise the !rice o your !roduct and sell the same num&er o units:

a) otal Revenue of abor will +ncrease

b) otal Revenue of abor will !ecrease

c) otal Revenue of abor will not $hange

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-se the ta&le &elow to answer the ne(t three uestions.

Number of

,orkers

otal

Product per

-our

Price of the

Product

,ages per

,orker per

-our

0 0 110 12 0 1

20 00 0 1

30 02 0 1

40 03 0 1

50 04 0 160 03 0 1

/. How many wor0ers ma(imi)e average !roduct

a) 0

b) 5

c) 6d) 1

e) 2

f) 7

. How many wor0ers are there where !eciali)ation ends and the law o Diminishing 'arginal

Returns 0ic0s in

a) 0

b) 5

c) 6

d) 1

e) 2f) 7

4. How many wor0ers ma(imi)e Proit as a unction o la&or

a) 0

b) 5

c) 6

d) 1

e) 2

f) 7

15. How many wor0ers ma(imi)e Revenue as a unction o la&or

a) 0

b) 5

c) 6

d) 1

e) 2

f) 7

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Answ! K" HW5 NB F#$$ 2015

1. D2. A: An increase in productivity raises the TRL curve which wi raise the !RL

"a#a $!%L&3. D4. '5. (6. A: )ecause TRL * % + T% ",&. - % /oes up TRL wi /o up.

Number of

,orkers

otal

Product per

-our

Price of the

Product

,ages per

,orker per

-our

Marginal Product

of abor 8$hange

in otal

Product/$hange in

abor)

(verage

Product of

abor 8otal

Product/abor

)

Value Marginal

Product of abor

8Marginal Product

9 Price)

0 0 10 40 10 45 10 40 4.5 4.5 4520 110 10 40 6.5 5.5 6530 150 10 40 4 5 4040 10 10 40 3 4.5 3050 10 10 40 1 3. 1060 10 10 40 1 3 "10&

ee Ta)e a)ove. ': L+A% "a#a L+A%L& wi )e at the point where A%L*!%L. And as - said in cass

at the very 7rst L they wi )e e8ua "as in L*10 in the ta)e&. %ease ta#e a

oo# at the 9La)or otes9 docu;ent and you wi see how in our )otto; et/raph where we have those two curves they ;eet at the very 7rst point

and then they cross a/ain. ?A(TL@ the sa;e than !%L then we need to oo# or where

!%L is /reater than A%L and then it turns into !%L ower than A%L.

-n the ta)e a)ove at L*20 !%LA%L and at L*30 !%LBA%L. Thereore theL+A% wi technicay )e )etween 20 and 30 wor#ers )ut we say itCs at 20

)ecause at 30 we have /one too ar "we preer to stop short than to /o too ar&.

. ': we need to oo# at productivity "!%L& to 7/ure out this one out.

peciaiation ends and D!R )e/ins where %roductivity Epea#sF "oo# at the

!%L /raph in your notes&. That happens at L*20.

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. (: L+%ro7t can )e ound where !RL*!(L which is the sa;e as sayin/ where

$!%L*: this happens when !RL "or $!%L& is 0. At L*50 $!%L is positive and at

L*60 $!%L is ne/ative. i;iar to , weHd rather stop short than /o too ar.