# Free Market Economics: Theories Of Production And Costs

2500 Words 10 Pages
Register to read the introduction… Theories of Production and Costs (Pindyck – Chapter 6 & 7): Exercise 8 (page 220); Exercise 1 (page 261)
Acounting cost = 40000+ 0 + 25000=65000
Economic cost = 40000+0+25000+ (50000-40000) + 24000 = 99000 Exercise 9 (page 262).
TC = 200 + 55q
A, the company’s fixed cost q= 0 => TC = 200 ⇨ FC = 200

b, if the company produce 100000 unit q = 100000/1000 = 100 ⇨ VC = 55q = 5500 ⇨ AVC = vc/q = 55
c) AVC = constant => marginal cost MC = AVC
=> MC = 55

d, AFC = FC/q = 200/q q= 100 ⇨ AFC = 2

E, when the company borrow’s money
Fixed cost = FC’ = 50000
New variable cost = VC’ = 45000 ⇨ AVC’ = 45 ⇨ TC = 50 +45q +3i
4. Market Structures (Pindyck – Chapter 8 & 10):
Exercise 5 & 6 (page 307);
C = 50 +4q+2q2
MC = 4 + 4q
At the given market price of \$20
MC = MR = P ⇨ 4 +4q =
Measuring Macroeconomic Variables (Blanchard – Chapter 2):
Exercises’ 4: (page 59).
A) Nominal GDP = P1Q1 + P2Q2 + P3Q3
Nominal GDP (2006) = 10*2000 + 4*1000 + 1000*1 = 20000 + 4000 + 1000 = \$25000
Nominal GDP (2007) = 12*3000 + 6*500 + 1000*1 = 36000 + 3000 + 1000 = \$40000
Change 2007-2006 = [(40000 - 25000)/25000]*100 = (15000/25000)*100 = 60%
B) Using the prices for 2006 as the set of common prices. We have:
Real GDP (2006) = 10*2000 + 4*1000 + 1000*1 = 25000
Real GDP (2007) = 12*2000 + 6*1000 + 1000*1 = 31000
Change = 25000 + 31000/25000 = 24%
C) Using the prices for 2007 as the set of common prices, we have:
GDP real 2006: 10(\$3,000)+4(\$500)+1,000(\$1)=\$33,000
GDP real 2007: \$40,000.
Real (2007) GDP has increased by 21.2%.
D) The two output growth rates constructed in (b) and (c) different because of measuring in different units
Exercises’ 7 (page 59).
A) Additional earn is \$12 => produce an extra income of \$12
Buy \$10 Chinese good => produce income of 10\$ to shop owner
=> total income increase: 12+ 10 = 22\$
B) The increase in measured GDP does not accurately reflect the effect on output of decision due to the actitivies of cooking dinner at home that is not accounted in

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