Basic Microeconomics

Chapter 6
Questions For Discussion

1. Describe the three stages of production. What stage of production is most favorable?
Explain your answer.

2. Explain the relationship between marginal product (MP) and average product (AP).

3. Explain the difference between short-run and long-run analysis of production. Cite an
example.

4. Explain the law of diminishing marginal returns and give numerical example.

5. Using the following table, what is the marginal product (MP) of the 5th unit of labor?

Units of Labor (L) Total Product (TP) Marginal Product (MP)

0 0 -
1 15 9
2 30 15
3 41 11
4 49 8
5 55 6
Basic Microeconomics
Chapter 6

Chapter Test

1. The following is a production schedule of a certain firm. Fill the missing value for
average product (AP) and marginal product (MP)

Land Labor TP AP MP
1 0 0 0 -
1 1 6 6 6
1 2 16 8 10
1 3 24 8 8
1 4 30 7.5 6
1 5 34 6.8 4
1 6 34 5.67 0
1 7 32 4.57 -2
1 8 26 3.25 -6

2. Verify the table in problem number 1, plot the total product (TP), marginal product (MP),
and average product (AP), and determine the three stages of production. At what stage
should one produce? Explain

3. Using the following table, at what points do diminishing marginal returns begin? Show
your computation.

Points Units of Labor Total Product per Average Marginal

(L) Day (Q) Product Product
A 0 0 0 -
B 1 27 27 27
C 2 62 31 35
D 3 95 31.67 33
E 4 122 30.5 27
F 5 126 25.2 4
G 6 125 20.83 1
 4. Given the following table for a firm whose price is 16 pesos per unit of quantity sold,
what is the marginal product of 3rd unit of labor?

Units of Labor (L) Total Product per Average Product Marginal Product
Day (Q)
0 0 0 -
1 13 13 13
2 22 11 9
3 27 9 5

5. The information illustrated between A and B on the above marginal product (MP) curve
is equivalent to which pair of points on the following total product (TP) curve below?
Briefly explain your answer.

 The information stated between A and B of the marginal product (MP) is equal to
the points YZ

6.

a. Plot isoquants I, II, III, and IV on the same set of axes.


 B. What do the isoquants indicate?

C. Compute for the marginal rate of technical substitution (MRTS) on all isoquants.

Poin Isoquant 1 Isoquant 2 Isoquant 3 Isoquant 4

ts Lab Capit MRT Lab Capit MRT Lab Capit MRT Lab Capit MRT
or al (K) S or al (K) S or al (K) S or al (K) S
(L) (L) (L) (L)
A 3 28 - 4 28 - 5.5 30 - 8 32 -
B 2 20 8 3 22 6 5 24 12 7 25 7
C 3 12 8 4 16 6 5.5 18 12 8 18 7
D 4 9 3 5 12.6 3.4 6 16.6 2.8 9 14 4
E 5 7 2 6 10 2.6 7 14 2.6 10 12.8 1.2
F 6 6 1 7 8.8 1.2 8 12 2 11 14 1.2
G 7 5.4 0.6 8 8 0.8 9 11.2 0.8
H 8 6 0.6 9 8.8 0.8 10 112 0.8

D. If the price of capital (PR) is 1 peso per unit while the price of labor (P ) is 2 pesos
per unit and assuming that the total outlay of the producer rises from 12 pesos to 16
pesos and then 20 pesos per time period, determine the expansion path.
Basic Microeconomics
Chapter 5
Questions For Discussion

1. What is utility? What is the difference between total utility and marginal
utility? Explain why utility is subjective for each individual.

2. How do we measure utility?

3. What is indifference curve? What are the characteristics of indifference

curve?

4. What is an Engel curve? How does an Engel curve appear for inferior and
luxury goods?

5.Discuss the difference between income and substitution effects

Basic Microeconomics
Chapter 5
Chapter Test

1. Consider the schedule on the right showing the total utility and marginal
utility obtained from eating ham sandwich. Complete the table

Quantity (units/day) Total Utility (TU) Marginal Utility (MU)

0 0 -
1 19 19
2 33 14
3 43 10
4 52 9
5 56 4
6 56 0
7 48 -8

2. Using the data in problem number 1, plot the total utility and marginal
utility of ham sandwich. Indicate the point of saturation

3. Below gives an individual marginal utility (MU) schedule for both good X and
good Y. Consider X and Y as the only available goods in the market. The price of
good X is 3 pesos, the price of good Y is 2 pesos, and the individual's income is
30.
 A. Show how the individual spends his income to maximize his utility
60 40
= =20=20
3 2
  B. State mathematically the equilibrium condition for the consumer
M =PxQx + Py+ Qy
30=6 ( 3 ) +6 ( 2 )
30=18+12
30=30

3. Compute the marginal rate of substitution (MRS) of each indifference

curve in the table. Fill your answer on the space provided

5. Using problem number 4, plot the three indifference curves

6. From the given table, compute for the marginal utility of good x (MUx).
Also, plot the TUx and MUx schedules and indicate the saturation point.

Qx TUx MUx
0 14 -
1 26 12
2 36 10
3 44 8
4 50 6
5 54 4
6 56 2
7 56 0
8 56 0
 9 54 -2

7. The following table gives points on four different indifference curves for a
particular consumer.

A. Plot the indifference curves I, II, III, and IV on the same set of aces

B. What do the indifference curves indicate?

 C. Compute for the marginal rate of substitution (MRS) on all indifference
curves.

Poin Indifferen MR Indifferen MR Indifferen MR Indifferen MR

ts ce Curve S ce Curve S ce Curve S ce Curve S
1 2 3 4
Qx Qy Qx Qy Qx Qy Qx Qy
A 2 26 - 3 24 - 5 24 - 7 24 -
B 3 12 14 4 16 12 5.5 18 16 8 18 6
C 4 9 3 5 12.6 3.4 6 16.6 1.4 9 14 4
D 5 7 2 6 10 2.6 7 14 2.6 10 12.6 1.4
E 6 6 1 7 8.8 1.2 8 12 2 11 11.4 1.2
F 7 5.4 0.6 8 8 0.8 9 10.8 1.2 12 10.6 0.8

D. If the price of good y is 1 peso per unit while the price of good x is 2 pesos
per unit and assuming that the budget of the consumer rises from 12
pesos to 16 pesos and then 20 pesos per time period, all spent on goods x
and y,

d.1 derive the income consumption curve.

d.2 find and explain the Engel curve.