Questions

Production Efficiency and PPF

Q1: In the context of production possibilities frontier (PPF), explain production efficiency, including its definition and the meaning of unused resources and misallocated resources

1. Definition of Production Efficiency

2. Unused Resources and Misallocated Resources

a. Meaning of Unused Resources

b. Meaning of Misallocated Resources

Q2: Answer the following questions:

1. Define the principal-agent problem and give examples

2. Explain the three solutions that companies use to solve the principal-agent problem:

Q3: Answer the following questions:

A. In a perfectly competitive market, explain why each firm in this market is a Price Taker and define this concept; and explain what kind of a demand curve faces each firm in this market

1. Define and explain the concept of Price Taker

2. Demand curve for a perfectly competitive firm 

B. Explain the two kinds of barriers to entry that exist in a monopoly.

Q4: A firm has the following short-run production functions. The total fixed cost of the firm is AED 1,800. The firm pays a wage rate of AED 300 per day for each worker. The firm’s only variable cost is the wages of workers. Calculate the following:

A. Calculate the Average Product of Labor and the Marginal Product of Labor by filling the empty cells in the following table

B. Calculate the following:

1. The Average Fixed Cost (AFC) when the total output is 75 units.

2. The Average Variable Cost (AVC) when the total output is 75 units.

3. The Average Total Cost (ATC) when the total output is 75 units.

4. Calculate the Total Cost (TC) when the total output is 105 units.

Q5: The Eastern Company pays each worker it employs a wage of AED 600. Each unit of output is sold at a price of AED 10. Answer the following questions:

A.  Fill in the empty cells in the table.

B. State the condition that the firm should meet to maximize his profit.

C. How many workers should this firm employ to maximize his profits?