Chapter 6 Econ 101 TUTORIAL

Please answer all the questions and submit during your tut on Tuesday
This must be hand written

1.1. Explain (using your own examples) the difference between implicit and explicit costs. (4
marks)
1.2. Which of the following would be considered long-run choices or short-run choices?
Explain

a. A dentist hires a new part-time dental hygienist. (1 mark)

b. The local oil refinery plans a complete restructuring of its production processes, including
relocating the plant. (1 mark)
c. A farmer increases the quantity of water applied to his or her fields. (1 mark)
d. A law partnership signs a 3-year lease for an office complex. (1 mark)

•
2. Assuming labor is the variable factor of production. The table below gives the production
function.

a. Compute marginal product and average product and fill in the bottom two rows of the
table. (4 marks)

•
Units of labour per day 0 1 2 3 4 5 6 7 8
Output 0 2 5.5 9.5 12 14 15 15.5 15
MP
AP

b. Draw a graph showing a relationship between total product, marginal and average
product curves. Shade the regions of increasing marginal returns, diminishing
marginal returns, and negative marginal returns. Explain and discuss the graph. (10
marks)

c. Draw the points showing total variable cost at daily outputs when a wage is R100 per
day. (3 marks)

d. Now suppose that the wage rises to R125 per day. On the same graph (c), show the
new points and sketch the new total variable cost curve and explain what has
happened. (4 marks)

e. Using R125 wage rate, plot the relationship between MP, MC and AP and AVC and
explain. (10 marks).

1|Page
3. How would each of the following affect fixed cost, average variable cost, and marginal
cost? (4 marks)
a. An increase in the cost of the lease of the firm’s building
b. A reduction in the price of electricity
c. A reduction in wages
d. A change in the salary of the CEO of the company

4.What happens to the difference between average total cost and average variable cost as a
firm’s output expands? Explain. (2 marks)

5. Business is booming at the local McDonald’s restaurant. It is planning adding a new grill
and french-fry machine, but the supervisor suggests simply hiring more workers. How should
the manager decide which alternative to pursue? (5 marks)

End of Exercise.
Good luck!

2|Page