Homework Managerial Economics #2

(Abednego)(Kezia) | () | (RA6047439)
Managerial
Economics
HOMEWORK #2
Managerial Economics
Homework#2
(RA6047439)
Date: (19/08/2016)
Name / : (Abednego) (Kezia) ()
1. Alcohol is an inelastic product and here is the result of imposing excise tax to the
customer:
a.
Price
0
1
2
3
4
5
6
7
8
9
10
Qd
Qs
10
9
8
7
6
5
4
3
2
1
0
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Price
after
tax $3 Qs
3
0
4
0.5
5
1
6
1.5
7
2
8
2.5
9
3
10
3.5
11
4
12
4.5
13
5
Qd = 10-P
Qs1 = P
Qs2 = -3/2 + P
Equilibrium 1:
Equilibrium 2:
Qd = Qs
Qd = Qs2
10 P = P
10 P = -3/2 + P
10 = 3/2 P
20 = 3P
10-3 = -3/2 + P
10+3/2 = P+ P
P1 = 6.33
23/2 = 3/2 p
Qd1 = 10 P
46 = 6 P
Qd1 = 10 6.33
p2 = 7.67
Qd 1= 3.67
Qs1= 3.67
Qd2 = 10 P2
Qd2 = 10-7.67
Qd2 = 2.33
In the first graph, it shows before the imposed of excise tax, the equilibrium at P1
and Qd1= Qs1. After the imposed of the tax $3, the supply curve shift (from S1 to
the S2) because imposing the tax make producer produce less (from Qs1 to Qs2)
and make the quantity demanded decrease (from Qd1 to Qd2). The original price
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Homework#2
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Date: (19/08/2016)
or P1 is as level $6.33 while the new price or P2 is at 7.67 at Qd2=Qs2=2.33. The

consumer surplus area is from P1, E1 and 10. Because of the imposed excise tax,
the consumer surplus area changes smaller into P2, E2, and 10. The producer
surplus area is from P1, E1 and 0. Because of the imposed excise tax, the
producer surplus area become smaller, changes into P3, B, and 0.
The red area is the customer burden while the blue area is the tax burden on
producer. The customer burden is the amount that should be bear by the customer
after the tax. In this case the consumer has to bear total of $3.12. it get from
($7.67-$6.33) 2.33. The producer burden is the amount that should be bear by
the producer after the tax. In this case the producer has to bear total $10.88. it got
from ($7.67-$ 3(because the imposed tax is $3)) 2.33
In here the producer burden is greater than the customer burden. It makes the
deadweight loss (the green area) in the producer surplus side bigger than the
deadweight loss (green areain the customer surplus side
Price
0
1
2
3
4
5
6
7
8
9
10
Qd
Price after tax

$3
Qs
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
0
1
2
3
4
5
6
7
8
9
10
3
4
5
6
7
8
9
10
11
12
13
Qs
0
1
2
3
4
5
6
7
8
9
10
b.
Qd = 5 P
Qs1 = P
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Homework#2
(RA6047439)
Date: (19/08/2016)
Qs2 = P - 3
Equilibrium 1:
Equilibrium 2:
Qd = Qs
Qd = Qs2
5 P = P
5P=P-3
5 = 3/2 P
5 + 3 = P+P
10 = 3P
8 = 3/2 P
P1 = 3.33
16 = 3 p
Qd1 = 5 P
P2 = 5.33
Qd1 = 5 (3.33)
Qd1= 3.33
Qs1 = 3.33
Qd2 = 5 P2
Qd2 = 5 -1/2 (5.33)
Qd2 = 2.33
QS2 = 2.33
In the first graph, it shows before the imposed of excise tax, the equilibrium at P1
and Qd1= Qs1. After the imposed of the tax $3, the supply curve shift (from S1 to
the S2) because imposing the tax make producer produce less (from Qs1 to Qs2)
and make the quantity demanded decrease (from Qd1 to Qd2). The original price
or P1 is as level $3.33 while the new price or P2 is at 5.33. the consumer surplus
area is from P1, E1 and 10. Because of the imposed excise tax, the consumer
surplus area changes smaller into P2, E2, and 10. The producer surplus area is
from P1, E1 and 0. Because of the imposed excise tax, the producer surplus area
become smaller, changes into P3, B, and 0.
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Homework#2
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Date: (19/08/2016)
The red area is the customer burden while the blue area is the tax burden on
producer. The customer burden is the amount that should be bear by the customer
after the tax. In this case the consumer has to bear total of $6.99, it get from
($5.33-$3.33) 2.33. The producer burden is the amount that should be bear by
the producer after the tax. In this case the producer has to bear total $5.42, it got
from ($5.33-$ 3(because the imposed tax is $3)) 2.33
In here the producer burden is lower than the customer burden. It makes the
deadweight loss (the green area) in the producer surplus side smaller than the
deadweight loss (green area) in the customer surplus side.
2. Graphically analyzing the labor market, justify if the following statements are true
or false:
a. Incoming foreign labor force to the local market will have a greater reduction
in wages if the labor demand is more inelastic. (T)
In the example, I draw two graphs the elasticity of demand is perfectly
inelastic and the elasticity of demand inelastic (not as inelastic as the first
one). In the first graph, when there is incoming foreign labor come, the supply
of the workers more therefore the supply curve is shifting to the right (from S1
to S2). And it means, the wages have to be decrease to find the new
equilibrium with the demand of the worker. As you can see, the wages
decrease a lot.
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Homework#2
(RA6047439)
Date: (19/08/2016)
In the second graph, the elasticity in inelastic. When there is an incoming

foreign labor, the supply of the workers getting more, therefore the supply
curve also shifting to the right (from S1 to S2). The wages also decrease to
find the new equilibrium match with the worker. As you can see, the wages
decrease, but no as much as the perfectly inelastic.
It can be concluded, that the more inelastic demand of the worker, and the
supply of labor higher, making the reduction getting higher too.
(graphs on the hardcopy)
b. The access to new markets will increase the demand for labor without
requiring a raise of workers wages (F)
Because having access to the new market will make the demand increase. In
the graph it shows, the demand is shifting (from D1 to D2) to the right
showing the increasing in demand. Because the demand increase, the
condition of excess demand happened. The demand for labor more than the
availability of labor supply. In order to get rid of the gap, the supplier of the
worker has to set the minimum wages higher (from wages 1 to wages 2) so the
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Homework#2
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Date: (19/08/2016)
demand for the labor (the company) will decrease (from Ld2 to Ld3).
Therefore, it will match between the supply and demand for the worker.
In conclusion, it is required to raise the worker wage. Because the demand
getting higher, more worker will set their wage level higher.
c. A growing economy could input a minimum wage over the equilibrium

without generating unemployment (F)
Because of the growing economy, the minimum wage will increase to certain
level (from W* to W2) and supply and demand curve doesnt shift. As you
can see in the graphics, the current condition show, the demand in the point A
while supply in the point B. it shows that point B (supply of demand) is
greater than point A. this condition name as excess supply. There will be some
unemployment, because the supply is greater than the demand. So the
statement was false, because a growing in economy will input a minimum
wage over the equilibrium generating the unemployment.
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Homework#2
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Date: (19/08/2016)
3.
a. Known:
Big mac in Argentina
= 10 Pesos
Big mac in USA
= $ 5 Dollar
Official (actual)Exchange rate

i.
= 4 = 1$
Implicit Exchange rate
Implied PPPrate=
Big Mac Price Argentina 10

= = 2/USD $
Big Mac PriceUSA
5
The implicit rate is 2 Pesos per dollar. This implicit rate called as the
purchasing power parity
ii.
Argentinian peso in undervalued because supposed that US$1 equals
to
but the market shows US$1 equals to
. And here is
the valuation :
( Actual Spot RateImplied PPP Rate)

Actual Spot Rate
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Homework#2
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Date: (19/08/2016)
(42) 2
= =0.5
4
4
The Argentinian peso in undervalued 50% to US Dollar
iii.
If a basic bundle of goods in USA costs $8000 a month, how much

USD are required to buy a similar bundle in Argentina?
Because Argentinian peso undervalued 100% to US Dollar therefore
the cost is
100% - total of undervalued
100% - 50% = 0%
50% * bundle of goods in USA
50% * $8,000 = $4,000
Everything you buy in the Argentina consider as a good market
because it is undervalued. Cheaper than you buy in America that cost
you $8,000
b. Assuming floating exchange rate regimes and short term analysis, draw
and explain the effect of the following events on the market for USD$ and
the exchange rate (amount of foreign currency for 1 USD$):
i.
The economic growth of China is sustained to their high exports to the

USA.
Because China sustain exporting goods the USA, therefore, USA has to
pay in the Chinese RMB. In order to pay with Chinese RMB, USA
central bank has to produced more US Dollar (that sufficient to
exchange with the Chinese RMB. Because right now the supply dollar
increase, therefore the supply curve was shift from S$1 to S$2. And rise
the new equilibrium (E2) which change RMB/USD 1 to RMB/USD 2.
Therefore, USD got depreciation towards RMB whilst RMB is
appreciation towards USD.
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Homework#2
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ii.
Date: (19/08/2016)
Venezuela
rates and price
in the world in
local
to consume
American products.
is facing high inflation

speculation (the highest
2016)
promotes
households
US
Since Venezuela facing high inflation and price speculation (the

highest), then Venezuela will import from US because the inflation of
Venezuela making the local price of product more expensive. Therefore,
Venezuela will import from America, making the demand of USD
increase (from D$1 to D$2). Then the exchange rate also changes from
Bolivar/USD1 to Bolivar/USD2. It means that USD is appreciation
towards Bolivar while Bolivar depreciated towards USD.
iii.
Efficient
League
USA
monetary
lower than its
policy of an Arab
country with significant trade with the
keeps
an
inflation
rate
trade partner.
Because the inflation rate

in Arab
league is lower, it
makes a
lot of people want to
invest more
in the AED rather
than
USD.
Price of goods
in Arab will
be cheaper.
Therefore, a
lot
of
people want to
release their
USD
into
AED.
And it makes the demand for USD shifting to the left (from D$1 to
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Homework#2
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Date: (19/08/2016)
D$2), making the USD is depreciation towards AED while AED is

appreciation towards USD.
iv.
Japan
is
aggressively
backing young graduates innovation projects, so the US Federal
Reserve looking to promote entrepreneurship and affordability of funds
decides to reduce the real interest rate below the Japanese interest rates.
Because of the real interest rate of Japanese Yen is higher than USD
making the demand of Japanese Yen higher. It makes the demand of
USD shifted to the left (from D$1 to D$2) because a lot of people more
interest to invest in the Japanese Yen. Therefore, the exchange rate
change, from JPY/USD1 to JPY /USD2. Right now USD is
depreciation towards Japanese Yen while Japanese Yen is appreciation.
Then what happened to the Supply in Dollar?. The supply in Dollar will
increase, shift to the right because a lot of people release their USD
money to change with Japanese Yen. The shifting make the new
equilibrium. And the exchange rate also change. The value of USD is
more depreciate toward Japanese Yen. And the value of Japanese Yen is
more appreciated.
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Homework#2
(RA6047439)
Date: (19/08/2016)
4. Vietnam and Ecuador produce, consume and trade both goods: banana and fish
sauce. Using the following table,
100 kilos of
bananas
100 liters of
fish sauce
Banana
consumption
(k)
Fish
sauce
consumption
(l)
Total
Hours
Needed
to
produced
Banana
Vietnam
Ecuador
8 hours
10 hours
7 hours
5 hours
80000
60000
10000
8000
banana consumption
banana consumption
8 hours=
10hours=
100 Kilos
100 Kilos
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Homework#2
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Total
Hours
Needed
to
produced
Fish Oil
a.
Date: (19/08/2016)
80,000
8 hours=
100 Kilos
60,000
10 hours=
100 Kilos
8008hours=6, 400hours
600010hours=6,000hours
FishOil consumption
FishOil consumption
7 hours=
5 hours=
100 Litres
100 Litres
10,000
7 hours=
100 Litres
8,000
5 hours=
100 Litres
1007hours=700hours
805hours=400hours
How many hours will Vietnam take to produce what they need of bananas and
fish sauce? How many hours will Ecuador take? What is the total hours adding
both countries?
Vietnam needs 6,400 hours to produced banana while 700 hours to produces fish oil. On
Absoulute Cost Vietnam
Absoulute Cost Ecuador
banana consumption
banana consumption
8 hours=
10hours=
100 Kilos
100 Kilos
100
kilos
Banana
80,000
8 hours=
100 Kilos
60,000
10 hours=
100 Kilos
8008hours=6, 400hours
600010hours=6,000hours
FishOil consumption
FishOil consumption
7 hours=
5 hours=
100 Litres
100 Litres
100
liters
Fish Oil
10,000
7 hours=
100 Litres
8,000
5 hours=
100 Litres
1007hours=700hours
805hours=400hours
the other hand, Ecuador needs 6,000 hours to produce banana while 400 hours to
produced fish oil.
So the total hours needed for Vietnam to produce banana and fish sauce is 6,400 hours +
700 hours = 7,100 hours while Ecuador needs to produce banana and fish sauce is 6,000
hours + 400 hours = 6,400 hours. The total to both countries are 7,100+6,400 = 13,500.
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Homework#2
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Date: (19/08/2016)
b. Compute the real terms of trade using the labor hours. Interpret your results
Relative Cost Vietnam
100
kilos
Banana
8
=1.14 FishSauce
7
100
Liters
Fish Oil
7
=0.875 Banana
8
Relative Cost Ecuador
10
=2 Fish Sauce
5
5 1
= Banana
10 2
In Vietnam, the production of 100 kilos Banana requires to sacrifice 1.14 fish sauce
whereas to produce 100 liters fish oil requires to sacrifice 0.875 banana.
In Ecuador, the production of 100 kilos of Banana requires to sacrifice 2 fish sauce
whereas to produce 100 liters fish oil requires to sacrifice 0.5 banana.
Vietnam needs to produce banana is less than Ecuador (only 1.14 than Ecuador
which needs 2) whereas Ecuador needs to produce Fish oil, because it is less time
than Vietnam (only 0.5 than Vietnam which needs 0.875)
c. Applying the comparative advantage, how will they specialize? How many hours
will Vietnam and Ecuador take to produce? What is the total hours adding both
countries?
Gains from Trade Vietnam
Initial Good
80,000
Fish Oil
Banana
Gains from Trade Ecuador
+10,000 60,000 Banana +8,000 Fish

Oil
After
Specializatio
n
( 80,000+60,000 )
Banana
Fish Oil
Total
8
=11,200
100
( 8,000+10,000 )
5
=900
100
11,200 hours + 900 hours = 12, 100 hours
In The comparative advantage, it would better for Vietnam to produce Banana. Because
in Vietnam in order to produce 100 kilos Banana, they only sacrifice 1.14 fish oil.
Compare to the Ecuador in order to producer 100 kilos they need to sacrifice 2 fish sauce
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Homework#2
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Date: (19/08/2016)
Meanwhile, Ecuador, it would be better for Ecuador to produce Fish oil. Because
Ecuador only needs to sacrifice 0.5 banana to produce 100 liters fish oil whereas Vietnam
has to sacrifice 0.875 banana to produce 100 liters of fish oil.
5. Fill the following table and illustrate total production versus labor (Q, L), and
production per worker (MPL /APL, Q). Indicate and explain regions for different
returns and output elasticity, as well as the most relevant points: maximum
marginal product, unitary output elasticity and zero marginal product. Explain the
relevance of these regions and points?
Labor (L)
Capital (K)
Total
Production
(Q)
Average
Elasticity
Marginal
productivit
productivity
MP L
y of labor
of labor (MPL)
(APL)
AP
L
Q
L
Q
L
0
10
10
10
10
10
10
30
15
20
1.333333333
10
60
20
30
1.5
10
80
20
20
10
95
19
15
0.789473684
10
108
18
13
0.722222222
10
112
16
0.25
10
112
14
10
108
12
-4
0.333333333
10
10
100
10
-8
0.8
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Homework#2
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Date: (19/08/2016)
Relationship of TP, APL, and MPL

Stage III
E p< 1
120
Stage I
E100
p> 1
Stage II
0<E p< 1
80
Point of
Maximum
60
Marginal
E p= 1
E p= 1
Quantity
Increasing Return Decreasing Return Negative return
40
Total Production
Average productivity of labor
(AP L) Q/L
Marginal productivity of labor
(MP L) (delta Output)/(delta L)
20
0
10
12
-20
Labor
In the very left named as the increase return region. In this are the Total Production
Function depicted increasing at increasing rate. Below the total production function is the
marginal productivity of labor. The marginal productivity of labor is derived from change
in Quantity produced divided with change in labor. Because the total production is
increase therefore the marginal productivity is also increase until in L1. In the stage I all
the elasticity is more than 1.
In the second region (from L2 until L3) it named as decreasing return because, the Total
Production function is increasing but at the decreasing rate. In the other hand, the
marginal productivity of labor also decreasing until L3. In the second stage all the
elasticity is bigger than zero but less than 1.
In the third region (from L3) it named as negative return because, the Total Production
function is decreasing and the marginal productivity of labor also decreasing. In this third
stage all the elasticity is less than zero (number in the green table is using absolute) .
6. Review the following questions regarding production economics
a. Coco cafeteria offers a variety of pastries and sandwiches. The marginal
productivity of a worker is computed as the number of customers served in a
given time period. Joseph has been employing a worker, but is considering to
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Homework#2
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Date: (19/08/2016)
hire a second and a third. Explain why the marginal productivity of a second
and third worker could be higher than the first. Why should the manager
expect that the marginal productivity of additional workers will decrease
eventually?
First here is the illustration
Labor
(L)
Total
customer
being served
(Q)
0
1
2
3
4
5
6
7
8
9
10
0
10
30
60
80
95
108
112
112
108
100
Marginal
product
of
Labour (Q)
Q
L
+10
+20
+30
+20
+15
13
4
0
-4
-8
When Coco hiring 1 employee, 1 employee can serve 10 customers, when

Coco increase to two labors it can also increase number of customer served
become 30 and when Coco increase it to three labors it increases 60 numbers
of customers. It means that when Coco hired 3 labors, each labor serve 20
customer. But take a look when Coco add into 4 labors. The customer being
serve increase to 80 people but it is increasing but the marginal product of
labor decrease from 30 to 20 and continue decrease when Coco hiring more
people. It is because of crowding effect. The more labors, the more difficult to
accomplish the job when superfluous labors present.
b. Zhenzhu NaiCha company produces following this function Q = 8K 3/4L 1/4 .
The price of capital is 4, the price of labor is 6 and the production budget is
240.
i.
Compute marginal productivity of capital (MPK )

Known:
Q = 8 K 3/4L 1/4
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Homework#2
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Date: (19/08/2016)
K=4
L=6
MPK = dQ/dK
3
3 1
MPk = 8 K 4 L 4
4
MPk =
ii.
1
4
6K L
1
4
Compute marginal productivity of labor (MPL )

MPL = dY/dL
3
4
3
4
1 1
MPL = 8 K L 4
4
1
MPL = 8 K L 4
4
MPL =
iii.
3
4
2K L
3
4
Compute the marginal rate of technical substitution (MRTS)

3
MP L 2 K 4 L 4 1 K 1 K
MRTS =
= 1 1 =
=
MPk
3 L 3L
4
4
6 K L
iv.
Find the level of capital and labor that maximizes production with a
fixed budget
P
P
( L L)=Budget
( k K )
PAGE 17
Homework#2
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Date: (19/08/2016)
( 4 K ) ( 6L ) =240
( 4 K )=240 ( 6L )
( K )=601.5 L
Labor
(L)
Capit
al (K)
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
60
58.5
57
55.5
54
52.5
51
49.5
48
46.5
45
43.5
42
40.5
39
37.5
36
34.5
33
31.5
30
Total
Producti Labor (L)
on (Q)
0
21
169.222
22
197.3575
23
214.0869
24
225.3722
25
233.32
26
238.9491
27
242.839
28
245.3542
29
246.7404
30
247.1721
31
246.7772
32
245.6531
33
243.8749
34
241.5018
35
238.5812
36
235.151
37
231.2419
38
226.8786
39
222.0809
40
Capital
(K)
28.5
27
25.5
24
22.5
21
19.5
18
16.5
15
13.5
12
10.5
9
7.5
6
4.5
3
1.5
0
Total
Producti
on (Q)
211.2411
205.2194
198.8049
192
184.8042
177.2139
169.222
160.8177
151.9856
142.7049
132.9477
122.6771
111.8434
100.3787
88.18667
75.12406
60.96068
45.27691
27.09721
0
216.8645
So the level of capital should be 45 and the level of labor should be 10

v.
Find the optimal level of production

The optimal level production is reach when MRP L equals to MFCL. the
MFCL is equal to wages (CL = $6) and MRPL in the optimum point.
MRPL got from
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Homework#2
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Date: (19/08/2016)
MPL x MRQ, While MRQ is equal to PQ here is the explanation:
(TR) (P Q)
=
=P q
(Q)
(Q)
After that, we found the explanation, we can put it into the formula
MRPL = MPL x MRQ
6=
3
4
3
4
2 K L Pq
3
4
3
4
6=
2 45 10 Pq
6=
6,18 Pq
q=0.97
P
Labor
(L)
Capital
(K)
Total
Productio
n (Q
Total
Revenue
(PxQ
Margina
l revenue
MRQ =
MPL
3
4
TR
Q
2K L
MRPL
3
4
MP L MR QMFCL
MPl/Cl
MP
K
60
58.5
169.22
164.15
0.97
42.3
41.0
6.0
7.05
57
197.36
191.44
0.97
24.7
23.9
6.0
4.11
55.5
214.09
207.66
0.97
17.8
17.3
6.0
2.97
54
225.37
218.61
0.97
14.1
13.7
6.0
2.35
52.5
233.32
226.32
0.97
11.7
11.3
6.0
1.94
51
238.95
231.78
0.97
10.0
9.7
6.0
1.66
PAGE 19
Homework#2
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Labor
(L)
Capital
(K)
Date: (19/08/2016)
Total
Productio
n (Q
Total
Revenue
(PxQ
Margina
l revenue
MRQ =
MPL
3
4
TR
Q
2K L
MRPL
3
4
MP L MR QMFCL
MPl/Cl
MP
K
49.5
242.84
235.55
0.97
8.7
8.4
6.0
1.45
48
245.35
237.99
0.97
7.7
7.4
6.0
1.28
46.5
246.74
239.34
0.97
6.9
6.6
6.0
1.14
10
45
247.17
239.76
0.97
6.2
6.0
6.0
1.03
11
43.5
246.78
239.37
0.97
5.6
5.4
6.0
0.93
12
42
245.65
238.28
0.97
5.1
5.0
6.0
0.85
13
40.5
243.87
236.56
0.97
4.7
4.5
6.0
0.78
14
39
241.50
234.26
0.97
4.3
4.2
6.0
0.72
15
37.5
238.58
231.42
0.97
4.0
3.9
6.0
0.66
16
36
235.15
228.10
0.97
3.7
3.6
6.0
0.61
17
34.5
231.24
224.30
0.97
3.4
3.3
6.0
0.57
18
33
226.88
220.07
0.97
3.2
3.1
6.0
0.53
19
31.5
222.08
215.42
0.97
2.9
2.8
6.0
0.49
20
30
216.86
210.36
0.97
2.7
2.6
6.0
0.45
21
28.5
211.24
204.90
0.97
2.5
2.4
6.0
0.42
22
27
205.22
199.06
0.97
2.3
2.3
6.0
0.39
23
25.5
198.80
192.84
0.97
2.2
2.1
6.0
0.36
24
24
192.00
186.24
0.97
2.0
1.9
6.0
0.33
25
22.5
184.80
179.26
0.97
1.8
1.8
6.0
0.31
PAGE 20
Homework#2
(RA6047439)
Labor
(L)
Capital
(K)
Date: (19/08/2016)
Total
Productio
n (Q
Total
Revenue
(PxQ
Margina
l revenue
MRQ =
MPL
3
4
TR
Q
2K L
MRPL
3
4
MP L MR QMFCL
MPl/Cl
MP
K
26
21
177.21
171.90
0.97
1.7
1.7
6.0
0.28
27
19.5
169.22
164.15
0.97
1.6
1.5
6.0
0.26
28
18
160.82
155.99
0.97
1.4
1.4
6.0
0.24
29
16.5
151.99
147.43
0.97
1.3
1.3
6.0
0.22
30
15
142.70
138.42
0.97
1.2
1.2
6.0
0.20
31
13.5
132.95
128.96
0.97
1.1
1.0
6.0
0.18
32
12
122.68
119.00
0.97
1.0
0.9
6.0
0.16
33
10.5
111.84
108.49
0.97
0.8
0.8
6.0
0.14
34
100.38
97.37
0.97
0.7
0.7
6.0
0.12
35
7.5
88.19
85.54
0.97
0.6
0.6
6.0
0.10
36
75.12
72.87
0.97
0.5
0.5
6.0
0.09
37
4.5
60.96
59.13
0.97
0.4
0.4
6.0
0.07
38
45.28
43.92
0.97
0.3
0.3
6.0
0.05
39
1.5
27.10
26.28
0.97
0.2
0.2
6.0
0.03
40
0.00
0.00
0.97
0.0
0.0
6.0
0.00
#D
0
PAGE 0
Homework#2
(RA6047439)
vi.
Date: (19/08/2016)
Draw the cost minimization problem subject to an output constraint

problem
Zenzhu naicha company has to produce a number of orders at least in
the Q(2) unit of output. The graph show the constrain required that the
solution be in the feasible region containing the combination of input
lies either in the Q2 isoquant or on isoquants that fall above and to the
right having larger output values (the shaded area). The total cost of
producing the required output is minimized by finding the input
combinations within its region that lie on the lowest cost isocost line.
The combination D (labor 10 and Capital 45) on the C4 isocost line
satisfies the condition. Combination E and F, which lie on the Q2
isoquant, produce more total cost because they fall on the C5 isocost
line. Therefore, using 45 capital and 10 labors resulting a minimum
cost of $240.
in the optimal input combination, the slope of the given isoquant must
equal with the lowest C4 isocost line. The slope of isoquant in Zenzhu
naicha case is
MRTS=
MP L K
=
MP K L
The slope of the isocost line is
K C L
=
L CK
And then multiple with (-1) therefore make it:
C L
CK
K
=
L
Which
MP L
K
equals to
so it can be concluded that
L
MP K
PAGE 1
Homework#2
(RA6047439)
Date: (19/08/2016)
MP L C L
=
MP K C K
Or equal with
MP L MP K
=
CL K C K
In the table above, as you can see he MPL/CL= 1.03 equals to MPK/CK= 1.03. is on
combination where labor 10 and capital 45. Therefore, it is an optimal solution to the
problem of minimizing cost subject to an output constrain.
The isocost get from
MP L C L
=
MP K C K
K $6
=
3L $4
K=4.5 L
PAGE 2
Homework#2
(RA6047439)
Date: (19/08/2016)
C =Pk. K+Pl.L
C = $4. K+$6L
C=$4(4.5L)+$6L
C=$24L
Capital
K
4.5
9
13.5
18
22.5
27
31.5
36
40.5
45
Labor
1
2
3
4
5
6
7
8
9
10
Cost
24
48
72
96
120
144
168
192
216
240
(graph in the hard copy)

c. Draw an isoquant map for each of the following companies. Explain your
draw decision and comment about the marginal rate of technical substitution.
i.
A company Alpha produces using a combination of fulltime and part

time workers. For every fulltime worker that leaves the company, the
company has to hire a greater number of part time workers to keep the
same level of output.
In the first graph the vertical line show the part time worker while the
horizontal line show the full time workers. When the full time leave
the company, it can be substitute with the part time workers. The slope
of isoquant measures how many part-time workers that can be
exchange with the full time worker to maintain the same level of
output. In the end on the isoquant, A, the isoquant attached with the
full time axis, because it is really possible that all full time worker can
produce without help from part timer. In the point B, it is give up the
full time workers and hire more part time worker to replace the fulltime worker. It means when the quantity of full time worker reduced,
the same level of output can be achieved when the part timer worker
increase. The slope increase (in absolute value) as the isoquant move
PAGE 3
Homework#2
(RA6047439)
Date: (19/08/2016)
up. The isoquant is convex, which mean it is substitutability, and

however, the rate at which one factor is substituted for the other in
production process (MRTS) also diminished
Full Time vs Partimer

25
20
15
Part TImer
10
5
0
Full Time
ii.
A company Beta realizes that it could always replace two unit of labor
with one unit of capital and keep a constant production.
Beta company could always replace the two unit of labor with one unit
of capital then the Marginal rate of technical substitution (MRTS) of
labor for capital will stay steady and constant and equal to 1/2 (1
capital divided with two labors). MRTS is used to measure the number
unit of capital be exchange or replace with a unit labor but still
maintain the output. The form of isoquant will be linear. Linear
isoquant means that it is perfect substitutability of input. The vertical
axis represents the Capital, while the horizontal axis represent the
worker.
PAGE 4
Homework#2
(RA6047439)
Date: (19/08/2016)
Worker
9
8
7
6
5
Capital 4
3
2
1
0
10
12
14
16
18
Worker
iii.
A company Kappa needs exactly two workers to operate a machine in

a factory, other combinations will not increase the production.
Because Kappa needs exactly two workers, it means that there is no
substitution labor for capital. Machine needs to be operate by the
workers, so the Kappa is operating in the fixed proportions (in this
case technology). Therefore, in this case it name as perfect
complement (because complement one another). The isoquant will be
L-Shaped. Kappa will maintain the output with fixed ration 2 labor :
1capital. The MRTS along the vertical part of the isoquant and zero on
the horizontal part.
(graphs on the hard copy)
PAGE 5

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(Abednego)(Kezia) | () | (RA6047439)

or P1 is as level $6.33 while the new price or P2 is at 7.67 at Qd2=Qs2=2.33. The

Price after tax

In the second graph, the elasticity in inelastic. When there is an incoming

c. A growing economy could input a minimum wage over the equilibrium

Big mac in USA

Official (actual)Exchange rate

Implicit Exchange rate

Big Mac Price Argentina 10

Argentinian peso in undervalued because supposed that US$1 equals

but the market shows US$1 equals to

( Actual Spot RateImplied PPP Rate)

If a basic bundle of goods in USA costs $8000 a month, how much

The economic growth of China is sustained to their high exports to the

is facing high inflation

Since Venezuela facing high inflation and price speculation (the

lower than its

Because the inflation rate

D$2), making the USD is depreciation towards AED while AED is

Absoulute Cost Ecuador

Relative Cost Ecuador

Gains from Trade Ecuador

+10,000 60,000 Banana +8,000 Fish

11,200 hours + 900 hours = 12, 100 hours

Relationship of TP, APL, and MPL

When Coco hiring 1 employee, 1 employee can serve 10 customers, when

Compute marginal productivity of capital (MPK )

Compute marginal productivity of labor (MPL )

Compute the marginal rate of technical substitution (MRTS)

So the level of capital should be 45 and the level of labor should be 10

Find the optimal level of production

MPL x MRQ, While MRQ is equal to PQ here is the explanation:

Draw the cost minimization problem subject to an output constraint

The slope of the isocost line is

The isocost get from

(graph in the hard copy)

A company Alpha produces using a combination of fulltime and part

up. The isoquant is convex, which mean it is substitutability, and

Full Time vs Partimer

A company Kappa needs exactly two workers to operate a machine in

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