Gallaway 
ECO 165

Homework: Unit 2
 

 

  1. Say I increase the price of movie tickets from $5 to $7 and sales fall from 350 to 250. Calculate the price elasticity of demand. Is the demand this level elastic or inelastic? If my costs remain the same, was increasing prices a good idea? Explain.

Labor

 

 TPP
 
 

 

 MPPL Formula:
DTPP/DQinput		 FC

Formula:

 VC

Formula:
Qinput* Pinput

 TC

Formula:
FC + VC

 AVC

Formula:
VC/Qoutput

 ATC

Formula:
TC/Qoutput

 MC

Formula:
DTC/DQoutput

 MRPL

Formula:
MPP*P
1 10   $40   $45 $0.50 $4.50   $50.00
2 30
20
         $1.67 $0.25  
3 45                
4 50                
5 51                
6 50             $XX $-5.00
Say this table describes the production & cost information of a pizza parlor. Assume Labor costs are $5 per unit & that Pizzas sell for $5. Fill out the table.
  1. What is the relationship between MPPL and MC? Use numbers from the table to explain your answer.   
  2. What is the relationship between MC & ATC?     Between MC & AVC? Use numbers from the table to explain your answer. Sketch a graph showing your results. 
  3. How many units of labor should be hired? Why?     
  4. Is this the long run or short run? How do you know? 

  5. Assume a perfectly competitive firms MR & MC are equal when the firm produces 100 units.  At this quantity, the firm is  faced by the following:

    What are the firms profits or losses?  In the short-run, what should this firm do? Explain.  What will happen  to the firm & the industry in the long run?
  6. What is marginal revenue equal to when total revenue is maximized?  Explain.
  7. If marginal costs are decreasing, will this cause total costs to decrease?  Will it cause average costs to decrease?  Explain.