Econ 200, Fall 2011,
Dr. Sarpca and Prof. Crossley
Problem Set 4: Suggested Solutions
(Reference: Mankiw and Taylor, Chapters 13, 14)
Multiple Choice
1d
2c
3d
4a
5b
6a
7d
8d
9b
10a
Short Answer
1. To decide how many pounds of compost to add, you have to compare the cost of adding
one more pound of compost (marginal cost of 1 lb compost) to the increase in your revenue
caused by adding this last pound of compost (marginal revenue). If by adding 1 lb of compost
your revenue increases by more than the cost of 1 lb compost, you should add this 1 lb of
compost. On the table you can see that for the first 4 lbs of compost increase in revenue is
higher than cost of 1 lb compost. For the fifth pound of compost adding 1 lb of compost costs
50 cents but revenue increases by 30 cents. Therefore adding the fifth pound would lose you
money. You should use 4 lbs compost.
tomatos in pounds
Total tomato production as a function of
compost input
50
150
100
50
Marginal
benefit of…
0
0
0
2
4
compost in pounds
6
8
0
5
10…
compost
in
lbs of compost
0
1
2
3
4
5
6
lbs of
tomatoes
increase in
revenue (in
cents)
increase in yield
(in lbs)
cost of compost
(in cents)
100
>120-100=20
20x30=600
1x50=50
>5
150
50
>3
90
50
>2
60
50
>1
30
50
>0.5
15
50
120
125
128
130
131
131.5
2. A fisherman notices the following relationship between hours spent fishing and the quantity
of fish caught.
Hours
Total Kg of
Marginal
Fish Caught
Product
0
0
------1
10
10
2
18
8
3
24
6
4
28
4
5
30
2
a) Fill in the marginal product of each hour spent fishing.
b) Graph the fisherman’s production function and explain its shape.
(concave, diminishing marginal returns)
c) The fisherman has a fixed cost of 10 lira (his fishing rod) and the opportunity cost of
his time is 5 lira a per hour. Fill in the following cost table.
Total Kg of
Fish Caught
0
10
18
24
28
30
Total cost
10
15
20
25
30
25
MC
(per kg)
----0.5
0.625
0.833
1.2
2.5
d) Graph the fisherman’s total cost curve and explain its shape.