Qrb Working with Numbers and Formulas

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QRB Working with Numbers and Formulas

Order of Operations
McDonnell & Brue (Economics)

Question 12 (p 129) in Ch 7

The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP for each decade jump. Indicate in each calculation whether you are inflating or deflating the nominal GDP data.

Year Nominal GDP, Billions Price Index
1996 = 100 Real GDP, Billions Inflating or
1960 $527.4 22.19 $2,376.75 Inflating
1968 911.5 26.29 $3467.10 Inflating
1978 2295.9 48.22 $4761.30 Inflating
1988 4742.5 80.22 $5911.87 Inflating
1998 8790.2 103.22 $8515.99 Deflating

Question 11 (p. 151) in Ch 8

a. If the CPI was 110 last year and is 121 this year, what is
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The Law of diminishing returns states that if one factor of production is increased while the others remain constant, the overall returns will relatively decrease after a certain point. The total fixed cost is the same regardless of the output; the total variable costs will change with the level of output resulting in the total cost as the sum of the fixed cost and variable cost at each level of output. Over the 0 to 4 range of output, the TVC and TC curves slope upward. They reflect a decreasing rate due to the increasing minor returns. The slopes curves will increase due to these diminishing marginal returns.

Graph Insert

B. Graph AFC, AVC, ATC, and MC. Explain the law of diminishing returns influences the derivation and shape of each of these four curves and their relationships to one another. Specifically, explain non-technical terms why the MC curve intersects both the AVC and ATC curves at their minimum points. Attach a graph to the sheet.

AFC falls since a fixed amount covers a larger portion of the output. The U-shape indicates the areas are experiencing an increase followed by diminishing returns. The ATC curve sums AFC and AVC vertically. The ATC curve falls when the MC curve is below it. The ATC rises when the MC curve is increases. The MC curve intersects the ATC curve at its lowest point.

c. Explain how the location of each curve graphed in question 7b would be altered if (1) total fixed cost had been $100

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