# Essay on Economics

851 Words4 Pages
Questions for Review 1. Give an example of an opportunity cost that an accountant might not count as a cost. Why would the accountant ignore this cost? Opportunity cost is where money does not change hands does not count as a cost. An example of this is the owner's opportunity cost for an alternate employment, since money does not change hands. The accountant would ignore this cost as no cash flow has occurred to cause an effect in the balance sheet. 2. Draw a production function that exhibits diminishing marginal product of labour. Draw the associated total-cost curve. (In both cases, be sure to label the axes.) Explain the shapes of the two curves you have drawn. We know that the average product of labour is the total…show more content…
Problems and Applications 1. A commercial fisherman notices the following relationship between hours spent fishing and the quality of fish caught: What is the marginal product of each hour spent fishing? Use the data to graph the fisherman’s production function. Explain its shape a) Hours | In pounds | MP | 1 | 10 | - | 2 | 18 | 8 | 3 | 24 | 6 | 4 | 28 | 4 | 5 | 30 | 2 | b) Hours | In pounds | TP | AP | MP | 1 | 10 | 10 | 10 | - | 2 | 18 | 28 | 9 | 8 | 3 | 24 | 52 | 8 | 6 | 4 | 28 | 80 | 7 | 4 | 5 | 30 | 110 | 6 | 2 | 120 | | | | | | 100 | | | | | | 80 | | | | | | | | | | TP | | 60 | | | | AP | | | | | | | | | | | | MP | | 40 | | | | | | 20 | | | | | | 0 | | | | | | 1 | 2 | 3 | 4 | 5 | | TP – constantly grow, so curve has positive slope AP and MP constantly fall, so curve has negative slope c) | | | TC | | | 40 | | | | | | 35 | | | | | | 30 | | | | | | 25 | | | | | | 20 | | | | TC | | | | | | | | 15 | | | | | | 10 | | | | | | 5 | | | | | | 0 | | | | | | 1 | 2 | 3 | 4 | 5 | | TC – constantly grow because variable costs grow in equal proportion, so curve has positive slope