FactoryWorkers(day)MPProfitMCReview for Test 2Homework Assignment 5 1. Max enjoys windsurfing (W) and snorkeling. He obtains the following total utilityfrom each of these sports:Half-hours(per month) TUWMU TUSMUS1 60 202 110 383 150 534 180 645 200 706 206 757 211 798 215 829 218 84 (a) Calculate Max’s marginal utility from windsurfing and from snorkeling. (You mayadd this information to the above table with columns for the MU for windsurfingand the MU for snorkeling.(b) If Max has $35 to spend, and equipment for windsurfing rents for $10 per half-hour,while snorkeling equipment rents for $5 per half-hour, how long will Max choose towindsurf? Snorkeling? Why? (c) What is Max’s budget constraint? Explain verbally and write the equation for hisbudget constraint below.(d) Now, suppose Max’s sister gives him $20 to send on his leisure pursuits, so he nowhas $55 to spend. How long will Max windsurf? Snorkeling? (e) If Max has $55 to spend and the rent on windsurfing equipment is cut to $5 per half-hour, how will Max now spend his time windsurfing? Snorkeling? 2. A jeans manufacturer hires workers to sew jeans in its factory and derives thefollowing daily yields of total product, or jeans output (in pairs):FactoryWorkers(day)TP(pairs)MPTotalValueProductTotalInputCostTotalProfitMVPMCMarginalProfit0 01 52 153 20 4 235 24 6 23(a) Does this production function exhibit increasing, decreasing, constant returns, orsome combination of the three? (b) Assuming the price of jeans is $30 per pair and each worker is paid $90 per day, ifthe jeans manufacturer acts to maximize profit, how many pairs of jeans will beproduced? How many workers will be employed? Whatwill the jean manufacturer's profit be at this output level? Why? (State the key condition used in your analysis and show all work in the tableabove.)(c) Now assume that each worker's wage drops to $30 per day. What is the new profitmaximizing total output? How many workers are hired at this level? Why?(d) As a result of the input cost decrease specified in part (c), have profits risen or fallen? By how much have profits changed? 2Handout 4: Production Cost Analysis1. a) Complete the cost table to make it consistent with the given numbers.b) Plot the total cost functions for the range of output 0 - 10 on one diagram,and the average and marginal cost functions on another diagram.Q TC TFC TVC ATC AFC AVC MC0 201 12 33 44 125 756 167 24.858 869 36010 5403Additional Problem 3: Production CostsThe total product schedule of Rubber Duckies, Inc., a firm making rubber boats, isdescribed by the following: Labor (L) Output (Q) (number of workers (rubber boats employed per week) per week) 1 1 2 3 3 6 4 10 5 15 6 21 7 26 8 30 9 33 10 35a) Calculate the marginal product and average product. What is the relationshipbetween these functions at output rates below 21 boats a week? Why? Atoutput rates above 21 boats per week? Why? (Draw a graph to illustrateyour answer).b) Now suppose the price of labor is $400 a week, and the total fixed cost is$10,000 a week. Calculate the firm's total cost, total variable cost, total fixedcost, average total cost, average variable cost, average fixed cost, andmarginal cost.4c) Suppose that total fixed cost increases to $11,000 per week. How will thisaffect the firm's average total cost, average fixed cost, average variable cost,and marginal cost? Explain
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