Economics 102 Assignment #1 (15 Points) Name
Number of Workers Average Physical Product Marginal Physical Product
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- Quantity of Oranges Total Variable Cost Average Variable Cost
- Quantity of Oranges Total Variable Cost Original Average Variable Cost
Number of Workers Average Physical Product Marginal Physical Product1 2 3 4 5 6 7 8 9 10 11
Continued on Page 20 Workers Quantity of Oranges Total Variable Cost Marginal Cost 1 10,000 $12,000 $1.20 2 40,000 24,000 3 90,000 36,000 4 130,000 48,000 5 160,000 60,000 6 180,000 72,000 7 192,000 84,000 8 198,000 96,000 9 200,000 108,000 10 200,000 120,000 3. Using the production function, up to how many pounds of oranges are there increasing marginal returns? Think of the example of an orange grove. Give some reasons why there might be increasing marginal returns. 4. Using the production function, show where there are diminishing marginal returns. Think of the example of an orange grove. Give some reasons why there might be diminishing marginal returns. 5. Examine your two tables. When the marginal physical product is rising, the marginal cost is ________________. And when the marginal physical product is falling, the marginal cost is ___________________. Part 2: 5 Points 1. Use the numbers from Part 1 to calculate the average variable cost. Then, plot the numbers on the graph on Page 17. The Total Variable Cost is repeated here. Quantity of Oranges Total Variable Cost Average Variable Cost10,000 $12,000 40,000 24,000 90,000 36,000 130,000 48,000 160,000 60,000 180,000 72,000 192,000 84,000 198,000 96,000 200,000 108,000
Then, explain why the average variable cost increases in the case of the orange grove. Continued on Page 21 3. Up to now, we have considered only the variable cost. But we must also consider the fixed cost. The fixed costs are generally the costs of the capital and the implicit costs. In this orange grove, the total fixed cost was $36,000 per year. Calculate the average fixed cost in the following table and plot the numbers on the graph on Page 22. Quantity of Oranges Total Fixed Cost Average Fixed Cost 10,000 $36,000 40,000 36,000 90,000 36,000 130,000 36,000 160,000 36,000 180,000 36,000 192,000 36,000 198,000 36,000 200,000 36,000 4. Now we are ready to examine the average total cost --- the cost of producing each pound of oranges. Calculate the average total cost from the following table and then plot the points on the graph on Page 22.
10,000 $48,000 40,000 60,000 90,000 72,000 130,000 84,000 160,000 96,000 180,000 108,000 192,000 120,000 198,000 132,000 200,000 144,000
Then, explain why it rises after 180,000 pounds per year.
When the average total cost is falling, the marginal cost is _________ the average total cost. When the average total cost is rising, the marginal cost is __________ the average total cost. (Answer “below” or “above”) 7. Explain why there is no relation between the marginal cost and the average fixed cost. Continued on Page 22 P 
0 Quantity of Oranges Part 3: 5 Points Go back Parts 1 and 2 on the orange grove. Quantity of Oranges Total Variable Cost Original Average Variable Cost10,000 $12,000 $1.20 40,000 24,000 .60 90,000 36,000 .40 130,000 48,000 .37 160,000 60,000 .375 180,000 72,000 .40 192,000 84,000 .43 198,000 96,000 .48 200,000 108,000 .54
Quantity of Oranges Per Year Total Cost Original Average Total Cost 10,000 $48,000 $4.80 40,000 60,000 1.50 90,000 72,000 .80 130,000 84,000 .65 160,000 96,000 .60 180,000 108,000 .60 192,000 120,000 .625 198,000 132,000 .667 200,000 144,000 .72
Quantity Average Fixed Cost Average Variable Cost Average Total Cost 10,000
40,000 90,000
130,000 160,000
180,000 192,000
198,000 200,000
Notice also that the larger orange grove, if utilized sufficiently, will allow us to produce at a lower possible cost than the smaller one. That is, with the larger orange grove, if we produce and sell 180,000 pounds per year, we can produce each pound at a cost $0.55. There is no way we can produce a pound of oranges at a cost this low with the smaller orange grove. This phenomenon is called ____________________________. Continued on Page 24  $
 0 Quantity
Part 4: 5 Points 1. Recently, there have been many mergers. Large banks have merged with other large banks. Computer companies have merged with other computer companies. These mergers are justified by the cost savings that occur if the two competing companies become one. In this question, let us consider gas stations. Two of the largest American companies, Exxon and Mobil, merged together into one company (as have Chevron and Texaco as well as BP and ARCO). As a result, where Exxon and Mobil had gas stations near each other, one will be closed. Use the principle of economies of scale to explain why there might be a reduction in the cost of production of selling gasoline if these two companies merge into one. Continued on Page 25
Albertsons or Vons. The advantage is NOT due to economies of scale but IS due to economies of scope. First, what does this statement mean? Second, why might this statement be true? (That is, why would Costco or Wal-Mart not have economies of scale? And why would they have economies of scope?) If you are not familiar with these, visit the nearest Costco and the nearest large grocery store. 3. When new products first are introduced, they are very expensive. So, for example, the first color television sets sold more over $2,000 in today’s money, the first VCRs sold for over $3,000 in today’s money, the first pocket calculators sold for over $300 in today’s money, and so forth. After the products are on the market for awhile, their prices tend to fall greatly. Use the principles of economies of scale and dynamic increasing returns to scale to explain why this phenomenon occurs. End of Assignment #5 Economics 102 Name__________________________ Assignment #6 (15 Points) Part 1: 5 Points 1. In each of the following cases, state whether you believe the industry fits as perfect competition, pure monopoly, monopolistic competition, or oligopoly. In the space below, state your reason: 1. Newspapers in San Diego County ______________ because 2. Colleges in San Diego County _____________ because 3. Bookstores for Students of Palomar College _____________ because 2. Ethics Question Milton Friedman said the following: “..there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. … Few trends could so thoroughly undermine the foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine.” Do you agree or disagree with this statement? Write a paragraph explaining your reasoning?
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rice of Oranges