Tough Decisions The Economic Reasoning Behind Firms Decisions

Our Experiment Model Principles of: –Production Function –Supply Curve –Average Total Cost Curve Conditions –Wage = $5 per hour –Hour = 1 minute –Capital fixed at 3 staplers –Demand is constant

Regression Least Squares Problem: Optimization –

Production Production Function: Q(L) –Regression Q’(L) = MP(L) Law of Diminishing Return Laborer gets hired when P x Q’(L) = Wage

LQPWMPLVMPLTR∆Profit 00$0.50$ $0.50$517$8.50 $ $0.50$519$9.50$18.00$ $0.50$518$9.00$27.00$ $0.50$515$7.50$34.50$ $0.50$511$5.50$40.00$ $0.50$58$4.00$44.00-$ $0.50$54$2.00$46.00-$3.00

Regression Equation for Production Function

Integrals Area under the curve: cost – Area above the curve: surplus – Box minus cost

The Supply Curve Constant Demand Supply as a function –MC(Q) –As quantity rises, input costs rise too –Regression Producer Surplus –Benefit –Equilibrium –Integrals Cost of Production

Producer Surplus using definite integrals

Cost and Profit Average Total Cost –Total Cost / Quantity Variable Cost Fixed Cost –Curve Shape 2 nd degree polynomial Concave up Profit –Quantity multiplied by the difference in price and average total cost

Conclusions The models were correct!!!!