Experiments and Activities for the Principles Class

Economics 231 - Production Exercise.

Today, we are going to begin a discussion on production and costs for firms. Understanding these issues is key to understanding firm decision making. We are going to undertake a simple production process, but one which will hopefully help you remember these concepts... even over spring break.

We are going to divide into teams of 6 people. Each team will be given one stapler and one pair of scissors as well as a stack of paper. The stapler and the scissors will be considered "capital" and the firm will be charged $5 to rent the stapler. The paper is free.

Each player will be considered labor. The cost of labor will be $3 per unit.

Your product is folded paper. At the start of a round you will cut a sheet of paper in half, fold the paper in thirds and staple the three open edges of the paper. Each unit completed during the round will be counted as output. A round will last roughly one minute.

In round one, only one unit of labor may be used. In each successive round the firm may add an additional unit of labor, but there will still be only one pair of scissors and one stapler.

As each round is completed fill in the first two columns of the attached table. Someone from each team must complete the extra copy of the table which will be turned in to the instructor.

Economics 231 Class Exercise

(Exercise adapted from John Taylor, Economics 2nd edition)

In the following game you will choose to hold up either a green sheet of paper, or a blue sheet of paper. The payoff from the game depends upon your decision and that of the other students in the class. The table below shows the payoffs for each choice of actions:

The class decision will be the choice made by the majority of the class. You can earn up to 240 points in the six rounds of this game.

There is to be no talking during this exercise (except to ask questions about the rules of the game). You should look to the front of the class during the exercise.

We will now make some changes to the rules. Prior to round one, and in between the other rounds, you will have the opportunity to discuss strategy with your classmates. The payoff table will be the same:

Economics 231 Spring 2003 Class Exercise 1

This exercise is designed to examine the economic efficiency of Christmas. Record gifts that you received, from whom you received the gifts, the amount you think was paid for the gift, and the amount you would accept to part with the gift.

1. Were any gifts "good values?" That is, are there any gifts for which the difference between the amount you would accept and the amount paid is positive? Who tended to give you these gifts?

2. Were any gifts "bad values?" That is, are there any gift for which the difference between the amount you would accept and the amount paid is negative? Who tended to give you these gifts?

3. Did you exchange any of these gifts? Mark which ones you exchanged. What was the reason for the exchange?

See, Joel Waldfogel, "The Deadweight Loss of Christmas." American Economic Review, December 1993, pp. 1328-1336.