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1.You've been hired as a managing consultant by an unprofitable firm to determine whether it should shut down its operation. The firm currently uses 70 workers to produce 300 units of output per day. The daily wage (per worker) is $100, and the price of the firm's output is $30. The cost of other variable inputs is $500 per day. Although you don't know the firm's fixed cost, you know that it is high enough that the firm's total costs exceed its total revenue. You know that the marginal cost of the last unit is $30. Should the firm continue to operate at a loss? Carefully explain your answer. 2.In economic analysis, any amount of profit earned above zero is considered "above normal" because (Points :1) a-normally firms are supposed to earn zero profit. b-this would indicate that the firm's revenue exceeded both its accounting and opportunity cost. c-this would indicate that the firm was at least earning a profit equal to its opportunity cost. d-this would indicate that the firm's revenue exceeded its accounting cost. 3. You have been appointed ‚Å“Global Manager‚ of a firm that has two plants, one in the United States and one in Mexico. Assume, you cannot change the size of the plants or the amount of capital equipment. The wage in Mexico is $5. The wage in the U.S. is $20. Given current employment, the marginal product of the last worker in Mexico is 100, and the marginal product of the last worker in the U.S. is 500. a. Is the firm maximizing output relative to its labor cost? Show how you know. b. If it is not, what should the firm do? 4. Assume the government cuts its purchases by $120 billion. As a result, the budget deficit is reduced by $40 billion, private domestic saving decreases by $10 billion, disposable personal income decreases by $80 billion and the trade deficit is reduced by $15 billion. By how much has national income (Y) changed? 5. Suppose that the economy starts at equilibrium and the mpc = 0.8. What would be the effect of a 300 increase in taxes once all the rounds of the multiplier process are complete? 6. For each of the following changes, show the effect on the supply curve, and state what will happen to market equilibrium price and quantity in the short run. a. The government requires pollution control filters that raise production costs. b. Wages of workers in this industry fall. c. There is an improvement in technology.

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