Answers to Odd-Numbered Problems
of labor increases, this changes the slope of the isocost line (so that labor “trades” for more units of capital). The new tangency with the same isoquant must occur at a mix using less labor and more capital. 13. a. The grade improvements offered by extra hours of studying finance are 8, 5, 5, 2, and 2 points. For economics, the improvements are 6, 4, 2, 2, and 1 points. b. The “first” hour should be devoted to finance (an 8-point increase), the next hour to economics (6 points), the next 2 hours to finance (5 points each hour), and the “last” hour to economics (4 points). The student’s predicted grades are 88 and 85. c. This allocation is optimal. Devoting her first 5 hours to finance and economics offers the greatest point opportunities. Then, devoting 2 additional hours to accounting will produce more extra points (3 points each hour) than devoting an additional hour to finance (2 points) or economics (2 points). 15. a. For N1 16 and N2 24, the average catch at the first lake is Q1/N1 [(10)(16) .1(16)2]/16 8.4 fish, and the average catch at the second lake is Q2/N2 [(16)(24) .4(24)2]/24 6.4 fish, respectively. Lured by the greater average catch, some number of fishers will leave the second lake for the first. b. Movement between lakes will cease when all individuals obtain the same average catch. Equating the average catches at the lakes implies 10 .1N1 16 .4N2. In addition, N1 N2 40. Solving these two equations simultaneously implies N1 20 and N2 20. The total catch at the two lakes is 320 fish. c. The commissioner seeks to maximize Q1 Q2 subject to N1 N2 40. The optimum solution to this constrained maximization problem implies that the marginal catch of the last fisher should be equal across the lakes. Here, MQ1 dQ1/dN1 10 .2N1 and MQ2 dQ2/dN2 16 .8N2. Setting MQ1 MQ2 and using N1 N2 40, we find that N1 26 and N2 14. The marginal catch at each lake is 4.8 fish; the maximum total catch is: [(10)(26) (.1)(26)2] [(16)(14) (.4)(14)2] 338 fish.
Chapter 6 1. The fact that the product development was lengthier and more expensive than initially anticipated is no reason to charge a higher price. These development costs have been sunk and are irrelevant for the pricing decision. Price should be based on the product’s relevant costs (the marginal cost of producing the item) in conjunction with product demand (as summarized by the product’s price elasticity).
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