INSTITUTE OF BUSINESS MANAGEMENT

COLLEGE OF BUSINESS MANAGEMENT

ECO 409 Business Economics

Assignment # 5 Due Date: 02-11-2019

Note: Read the related topics from Chapter 9 plus go through the class lectures carefully
before solving this assignment.

Q. 1. Complete the following table by calculating marginal product and average product from the data given.

Labor Total Product Marginal Product Average Product

(L) (Q) (MPL) (APL)
0 0
1 15
2 34
3 51
4 65
5 74
6 80
7 83
8 83
9 82

Plot the total, marginal, and average product curves and explain in detail the relationship between:

a. Total product curve and marginal product curve.

b. Marginal Product curve and average product curve
c. Explain why marginal product first rises, then declines, and ultimately becomes negative.

Q. 2. Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to
rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an
accountant.
a. What are her implicit costs per year? What are her explicit costs per year?
b. If your aunt thinks she can sell $510,000 worth of merchandise in a year, should she open the store?
Explain.

Q. 3. Indicate whether each of the following is an explicit cost or an implicit cost:

a. A manager’s salary
b. Payments to IBM for computers
c. A salary forgone by the owner of a firm by operating his or her own company
d. Interest forgone on a loan an owner makes to his or her own company
e. Medical insurance payments a company makes for its employees
f. Income forgone while going to college

Q. 4. Suppose you own a video game store. List some of the fixed inputs and variable inputs you would use in
operating the store.

Note: The assignment should be hand written on foolscap sheets.