Questions for review
1. Why should a person in charge of hiring productive inputs care more about marginal products than about average products?
2. Distinguish between diminishing returns to a variable input and decreasing returns to scale.
3. How is an isoquant map like an indifference map? In what important respect do the two constructs differ?
Suppose the marginal product of labor is currently equal to the average product. If you were one of ten new workers the firm was about to hire, would you prefer to be paid the value of your average product or the value of your marginal product? Would it be in the interests of an employer to pay you the value of your average product?
You own and manage your own business. The business requires an average of 80 hours of your time every week. Suppose that instead of working in your own business, your best alternative is to work the same amount of hours in a large corporation for an income of $125,000 per year.
What is the opportunity cost of your decision to devote your time to managing your business?
Is this cost explicit or implicit?
Consider two next-door neighbors, Sarah and John, living in identical apartments in a condominium complex. John rents his unit for $2000/month. Sarah purchased her apartment (with cash) in a previous year for $200,000.
Make the argument that the opportunity cost of both John and Sarah’s decision to reside in their apartment is $2000.
Which opportunity costs is considered explicit? implicit?
Should both John and Sarah consider their opportunity cost in making the decision to occupy their condominium unit?
[excerpt from Frank textbook]
Just after finishing college, I was a high school
math and science teacher in Sanischare, a small
village in eastern