HW 6 CH 6
1. Consider Boeing (a producer of jet aircraft), General Mills (a producer of breakfast
cereals), and Wacky Jack's (which claims to be the largest U.S. provider of singing
telegrams). For which of these firms is the short run the longest period of time? For
which is the long run the shortest? Explain.
The short run is longest for:
Boeing because aircraft production requires large, specialized machines and the long run is
shortest for Wacky Jack's because providing singing telegrams requires primarily labor.
2.
3. In the short-run, a firm cannot vary its capital,
K=4,
but can vary its labor, L. It produces output q. Explain why the firm will or will not experience
diminishing marginal returns to labor in the short-run if its production function is
q=10L+K.
In the short-run, the firm (both a & b are right)
A. will not experience diminishing marginal returns to labor because labor's marginal product is
constant.
B. will not experience diminishing marginal returns to labor because labor's marginal product
equals 10.
The MPL is maximum when the first-order derivative is zero
Explanation:
The MPL is decreasing after 25 units of labor
Quiz 3
1 The production function for a firm that uses only labor and capital shows

the maximum amount of output that can be produced from given levels of labor and
capital.
2 The slope of the isocost line tells the firm how much
 capital must be reduced to keep total cost constant when hiring one more unit of labor.
3
4 If the marginal cost of producing a good is increasing as a firm produces more of the
good, then which of the following must be TRUE?
 MPL is falling.
5 Economists assume that firm owners want to maximize profit. Profit is the difference between
revenue and cost.
6 Learning by doing will result in
 lower long−run costs than short−run costs.
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SR COMPETITION
A small business owner earns $50,000 in revenue annually. The explicit annual costs equal $30,000. The
owner could work for someone else and earn $25,000 annually. The owner's business profit is ________
and the economic profit is ________.
A. $20,000, −$5,000
Suppose the fixed cost of a Christmas trees business is $7,000 and sunk. The variable cost for
each tree is $20. According to the forecast, the market price for Christmas trees is $25 each and
the owner could sell 1,000 trees at most each year. The owner
A.should keep operating.

Suppose TC = 10 + (0.1 ∗ q2). If there are 100 identical firms in the market, the market
supply curve is ________________
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PRICE DISCRIMINATION