Economics Assignment

ECON 002

Homework 3

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Read these instructions carefully!

· Carefully answer each of the questions below.

· You can write or type your answers for the questions EXCEPT THE GRAPH FOR PART 1B) MUST BE COMPLETED BY HAND (NOT USING THE DRAWING TOOLS IN WORD OR ANY OTHER PROGRAM).

· Please put your name and PSU ID number at the top of the 1st page.

· You may use as many sheets of paper as you need.

· When you are finished, scan your entire document (including the parts you typed and the parts done by hand).

· Save the file on your computer (.PDF format preferred) and then upload it to the ANGEL dropbox for this homework assignment.

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1. (50 total points) Joe runs a farm. He rents the land for $100 a day, and he can hire workers for $20 per day for each worker. His short run production function is given in the first two columns of the following table.

Workers	Output	MP	TVC	TFC	TC	AFC	AVC	ATC	MC
0	0	-------	0			-------	--------	-------	-----
1	10
2	25
3	45
4	60
5	70
6	74

a) (25 points) Complete the table above.

b) (20 points) Carefully graph AVC, ATC, and MC. Your graph should have cost (measured in dollars) on the vertical axis, and output on the horizontal axis.

c) (5 points) With which worker does diminishing marginal returns set in?

2. (10 points) Carefully explain the difference between diminishing marginal returns and decreasing returns to scale.

3. (24 points) Suppose a competitive firm can sell its output for $5 per unit. The following table gives the firm’s short run production function.

Labor	Output
0	0
1	60
2	130
3	180
4	220
5	250
6	260

In the table below, you will determine several points on the firm’s demand curve for labor. To do this, you must determine how many workers the firm should hire for different values of the wage rate in order to maximize profit. Complete the table below:

Wage Rate Per Worker	Quantity Demanded of Workers
$45
$75
$225
$270
$320
$340

4. (16 points) What are the factors that can lead to a change in demand for labor (shifting of the labor demand curve?) Describe how labor demand would change in response to a change in each factor separately.