Transcript Ex7301

What is the most that you would be
willing to pay for an Ipod if you
couldn’t get them any cheaper?
20%
16%
16%
12%
10%
9%
6%
5%
4%
le
ss
or
15
0
20
0
25
0
30
0
35
0
40
0
45
0
2%
50
0
$600 or more
$500
$450
$400
$350
$300
$250
$200
$150
$100 or less
rm
or
e
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A firm can hire labor for $50 per worker. It
has no other costs. The value of its output is
shown in the table below.To maximize profits,
how many laborers should it hire?
Number of
workers
1
2
3
4
5
91%
1.
2.
3.
4.
5.
1
2
3
4
5
1%
6%
2%
1%
Value of
output
$200
$300
$360
$400
$420
Why is that?
• Compare wage to marginal value product.
Wage is $50.
# laborers
1
2
3
4
5
Val output
$200
$300
$360
$400
$420
MVP
$200
$100
$60
$40
$20
A competitive firm can sell its output at
$10 per unit. The firm’s total costs are
shown below. To maximize its profits
how many units should it produce?
Output
1
2
3
4
5
59%
8%
5
5%
5
4
3
2
3
24%
4
5
5%
More than 5
2
1.
2.
3.
4.
5.
Total cost
$5
$14
$27
$36
$48
Why is that ?
For a competitive firm, producing an extra
unit will increase profit if marginal cost is
smaller than price and decrease profit if
marginal cost is larger than price.
Marginal cost of first unit $5, second unit $9,
third unit $13, etc..
Price of output is $10.
For a monopoly that faces a downward
sloping demand curve, marginal revenue
from selling an extra unit is equal to the
price at which it can sell that unit.
70%
1. True
2. False
e
e
30%
Why is that?
• Listen to today’s lecture.