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Economics Homework 5 - Model (view source)
Revision as of 00:08, April 2, 2013
, 00:08, April 2, 2013no edit summary
2. Suppose it costs you $500 to make each of your first 5 units, then $200 to make each of your next 5 units, and then $100 to make each of your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit, after you have made 15 units? What is your overall average cost per unit after you make your 16th unit? Compare the two and comment on how whether they are equal, and why.
2. Suppose it costs you $500 to make each of your first 5 units, then $200 to make each of your next 5 units, and then $100 to make each of your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit, after you have made 15 units? What is your overall average cost per unit after you make your 16th unit? Compare the two and comment on how whether they are equal, and why.
:The marginal cost for units 11-15 is $100/5 = $20 for each unit. The marginal cost for the next unit, the 16th unit, is the same: $20.
:The marginal cost for each of units 11 through 15 is $100. The marginal cost for the next unit, the 16th unit, is the same: $100.
:The average cost is the total cost ($500 plus $200 plus $100 plus $20) divided by the total number of units (16), which equals $820/16 = $51.25 . Marginal cost is usually lower than average cost because average cost includes fixed costs, like building a factory, while marginal cost includes only the extra expenses for one more unit.
:The average cost is the total cost ($500x5 plus $200x5 plus $100x5 plus $100) divided by the total number of units (16), which equals $4100/16 = $256.25 . Marginal cost is usually lower than average cost because average cost includes fixed costs, like building a factory, while marginal cost includes only the extra expenses for one more unit.
3. Suppose your annual income increases from $20,000 to $25,000. Suppose your demand for steak increases by 10% and your demand for fast food hamburgers decreases by 5%. Which type of goods are steak, and which type are hamburgers?
3. Suppose your annual income increases from $20,000 to $25,000. Suppose your demand for steak increases by 10% and your demand for fast food hamburgers decreases by 5%. Which type of goods are steak, and which type are hamburgers?