Changes

2.  The Lecture mentioned how a prior student in this course is paying her way through college by working as a waitress in a fancy Manhattan restaurant.  Suppose her boss told her one day, "We were profitable last month.  To increase our profits next month, I'm going to doubt our number of waitresses so that we can serve more people!"  But our former economics student told him that his plan would fail because there is _____________ returns of scale in the restaurant, because more waitresses would result in more wasted time talking to each other and waitresses getting in the way of each other.

2.  The Lecture mentioned how a prior student in this course is paying her way through college by working as a waitress in a fancy Manhattan restaurant.  Suppose her boss told her one day, "We were profitable last month.  To increase our profits next month, I'm going to doubt our number of waitresses so that we can serve more people!"  But our former economics student told him that his plan would fail because there is _____________ returns of scale in the restaurant, because more waitresses would result in more wasted time talking to each other and waitresses getting in the way of each other.

3.  Explain what "marginal product" is.

3.  Give an example of a "short run" cost for a firm, and give an example of a "long run" cost.  It can be any type of firm.

4.  Suppose you own a mechanics' shop that fixes cars, and you have 4 employees whom you pay $12 per hour.  On average your 4th employee can fix 3 cars an hour.  What is your marginal product (MP) and marginal cost (MC), and what is the minimum on average that you need to charge customers (your marginal revenue) for fixing cars?  (Assume your only cost is labor, and the customer pays the cost of any parts.)

4.  Suppose you own a mechanics' shop that fixes cars, and you have 4 employees whom you pay $12 per hour.  On average your 4th employee can fix 3 cars an hour.  What is your marginal product (MP) and marginal cost (MC), and what is the minimum on average that you need to charge customers (your marginal revenue) for fixing cars?  (Assume your only cost is labor, and the customer pays the cost of any parts.)

5.  Do you think the returns to scale from the world's population is increasing, constant or decreasing? There is no correct answer but you will be graded on your explanation.

5.  Earlier in this course we learned that someone who obtains a college degree earns, over the course of his life, about $500,000 more than someone who does not. How can you explain this fact in terms of the advantages of "long run" costs over "short run" costs?

6.  Give an example of a "short run" cost for a firm, and give an example of a "long run" cost.  It can be any type of firm.

6.  Suppose you spent one million dollars to build your factory, and another million dollars for materials and labor and electricity to make 50 cars.  What is your fixed cost, average variable cost, and average total cost?  Now suppose it costs you $18,000 to make a 51st car.  What is your marginal cost?

7.  Earlier in this course we learned that someone who obtains a college degree earns, over the course of his life, about $500,000 more than someone who does not.  How can you explain this fact in terms of the advantages of "long run" costs over "short run" costs?

7.  Suppose you own and drive a taxicab, and its annual license fee is $1000 per year.  Suppose you learn that the license fee will increase to $1200 next year. Does this increase either increase, decrease, or have no effect on (a) marginal cost, (b) average variable cost, and (c) average total cost?

===Honors===

===Honors===

Provide brief answers to '''''all''''' of these questions.

Provide brief answers to '''''all''''' of these questions.

8.  Suppose there is a sudden increase in the market price for a firm's widget, and that its only cost is labor.  The firm will hire more employees to produce more output until the point where the value of its marginal product of labor equals its _____________.

8.  Suppose there is a sudden increase in the market price for a firm's widget.  The firm will hire more employees to produce more output until the point where the value of its marginal product of labor equals its _____________.  [Hint: the answer is NOT simply "marginal cost"].

9.  Explain the following from the lecture: if inflation is 10% per year for three years, but one particular good keeps the same price during those three years, then its opportunity cost and real price actually decreased.

9.  Explain the following from the lecture: if inflation is 10% per year for three years, but one particular good keeps the same price during those three years, then its opportunity cost and real price actually decreased.