Question 1

What does the production function measure? Why does the slope of the production function change? (Hint: draw a diagram to illustrate a production function and its slope)

Person A hires Person B to do odd jobs around their house and garden and agrees to pay them $10 per hour. Person A guarantees at least 40 hours of work per week, and to pay 1.5 times the base rate (i.e. $15 per hour) for every hour worked beyond 40 hours. If B works for 45 hours this week, are wages a fixed cost or a variable cost to A? Calculate A's total costs for the week. Explain your answer.

What is producer surplus? What information does it provide about the benefits a firm receives for supplying a product in the market?