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(ECON110)2009_s_quiz_econ110_525.pdf
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ECON 110
Problem Set 4 Solutions


Chapter 9: Problem 2
a. All methods other than pocket calculator with paper and pencil are technologically efficient.
To use a pocket calculator with paper and pencil to complete the tax return is not a technologically efficient method because it takes the same number of hours as it would with a pocket calculator but it uses more capital.

b. The economically efficient method is to use (i) a pocket calculator, (ii) a pocket calculator, (iii) a PC.
The economically efficient method is the technologically efficient method that allows the task to be done at least cost.
When the wage rate is $5 an hour: Total cost with a PC is $1,005, total cost with a pocket calculator is $70, and total cost with paper and pencil is $81. Total cost is least with a pocket calculator.
When the wage rate is $50 an hour: Total cost with a PC is $1,050, total cost with a pocket calculator is $610, and the total cost with paper and pencil is $801. Total cost is least with a pocket calculator.
When the wage rate is $500 an hour: Total cost with a PC is $1,500, total cost with a pocket calculator is $6,010, and total cost with pencil and paper is $8,001. Total cost is least with a PC.


Chapter 9: Problem 6
a. The Herfindahl-Hirschman Index is 1,800.
The Herfindahl-Hirschman Index equals the sum of the squares of the market shares of the 50 largest firms or of all firms if there are less than 50 firms. The Herfindahl-Hirschman Index equals 225 + 100 + 400 + 225 + 625 + 225, which equals 1,800.

b. This industry is moderately competitive because the Herfindahl-Hirschman Index lies in the range 1,000 to 1,800.

Chapter 10: Problem 4
The increase in the wage rate is a variable cost, so the total variable costs increase. The increase in total variable costs increases total cost but total fixed cost does not change. Average variable cost is total variable cost per unit of output. The average variable cost curve shifts upward. Average total cost is total cost per unit of output. The average total cost curve shifts upward. The marginal cost curve shifts upward. The average fixed cost curve does not change.

Chapter 10: Problem 6
a. Total cost is the cost of all the factors of production. For example, when 4 workers are employed they now produce 240 surfboards a week. With 4 workers, the total variable cost is $2,000 a week and the total fixed cost is (coincidentally also) $2,000 a week. The total cost is $4,000 a week. The average total cost of producing 240 surfboards is $16.67 a surfboard. The remainder of the ATCs are calculated similarly.



b. The long-run average cost curve is made up of the lowest parts of the firm's short-run average total cost curves when the firm operates one plant and two plants. The long-run average cost curve is similar to Fig. 10.8.



c. It is efficient to operate the number of plants that has the lower average total cost of a surfboard. It is effi