METU
Department of Economics
Fall 2023-2024
Course: Econ 210 Principles of Economics
Students Assistant: Nijat Ismayilov (nijat.ismayilov@metu.edu.tr)
Problem Set 4
Part A: Problems
1. Define the following terms:
a) Profit, Total Revenue, Total Cost
b) Marginal Product, Average Product, Law of Diminishing Return
c) Fixed Cost, Variable Cost, Total Cost, Total Fixed Cost, Total Variable Cost, Average Fixed Cost, Average
Variable Cost, Average Total Cost, Marginal Cost
d) Income and Substitution Effect
No 2 Medium trucks are larger than pickup trucks and are primarily purchased by
construction firms and other businesses. Ford has a successful line of F-series pickup trucks. In
2015, Ford announced plans to start building medium trucks in its factory in Avon Lake, Ohio.
According to an article in the Wall Street Journal, Ford’s new medium trucks “would share
engines, transmissions and cab components with its other F-series vehicles to build
economies of scale.” According to the same article, Ford’s new medium truck would have
costs that were $5,000 less per vehicle than the similar trucks produced by competing firms.
Explain what the article means by saying Ford intends “to build economies of scale” means.
a) Use a long-run average cost curve to illustrate Ford’s strategy.
b) What does the article allow us to conclude about the operations of Ford’s competitors?
3. The following equations represent the TFC and the TVC of the firms, Menekşe Canteen Inc.
and Basri Canteen Inc.
COSTS
Menekse Canteen Inc.
Basri Canteen Inc.
TFC
60
100
TVC
2(Q^2) + 10Q
Q^3 + 2(Q^2) + 10Q
