Answers to Odd-Numbered Problems 9of labor increases, this changes the slope of the isocost line (so that labor
“trades” for more units of capital). The new tangency with the same
isoquant must occur at a mix using less labor and more capital.- a. The grade improvements offered by extra hours of studying finance
are 8, 5, 5, 2, and 2 points. For economics, the improvements are 6, 4,
2, 2, and 1 points.
b. The “first” hour should be devoted to finance (an 8-point increase),
the next hour to economics (6 points), the next 2 hours to finance (5
points each hour), and the “last” hour to economics (4 points). The
student’s predicted grades are 88 and 85.
c. This allocation is optimal. Devoting her first 5 hours to finance and
economics offers the greatest point opportunities. Then, devoting 2
additional hours to accounting will produce more extra points (3
points each hour) than devoting an additional hour to finance (2
points) or economics (2 points). - a. For N 1 16 and N 2 24, the average catch at the first lake is Q 1 /N 1
[(10)(16) .1(16)^2 ]/16 8.4 fish, and the average catch at the
second lake is Q 2 /N 2 [(16)(24) .4(24)^2 ]/24 6.4 fish,
respectively. Lured by the greater average catch, some number of
fishers will leave the second lake for the first.
b. Movement between lakes will cease when all individuals obtain the
same average catch. Equating the average catches at the lakes implies
10 .1N 1 16 .4N 2. In addition, N 1 N 2 40. Solving these two
equations simultaneously implies N 1 20 and N 2 20. The total
catch at the two lakes is 320 fish.
c. The commissioner seeks to maximize Q 1 Q 2 subject to N 1 N 2 - The optimum solution to this constrained maximization problem
implies that the marginal catch of the last fisher should be equal
across the lakes. Here, MQ 1 dQ 1 /dN 1 10 .2N 1 and MQ 2
dQ 2 /dN 2 16 .8N 2. Setting MQ 1 MQ 2 and using N 1 N 2 40,
we find that N 1 26 and N 2 14. The marginal catch at each lake is
4.8 fish; the maximum total catch is: [(10)(26) (.1)(26)^2 ]
[(16)(14) (.4)(14)^2 ] 338 fish.
Chapter 6
- The fact that the product development was lengthier and more
expensive than initially anticipated is no reason to charge a higher price.
These development costs have been sunk and are irrelevant for the
pricing decision. Price should be based on the product’s relevant costs
(the marginal cost of producing the item) in conjunction with product
demand (as summarized by the product’s price elasticity).
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