PROBLEM #1 A local bicycle shop offers bicycle repair services to their customer

Question

PROBLEM #1 A local bicycle shop offers bicycle repair services to their customers. The owner of the shop operates with a fixed amount of equipment used to repair the bicycles. The owner carefully tracks the total number of repairs completed as compared to the number of workers employed to do the repairs. The table below represents the shop's production function of repaired bikes, per month, based on the information the shop owner has collected. Labor (# of workers) Total Product (Output, Repaired Bikes) Marginal Product Of Labor Average Product Of Labor 0 40 100 240 440 660 860 960 a. ne whether this table represents a short-run or long-run production function. b. Compute the marginal product and average product of labor, using the information c. Compare the marginal product of the third, fourth, fifth, and seventh workers. With above, for each level of labor (complete the table). which worker do diminishing marginal returns set in?

Explanation / Answer

a) This is a short run production function. Because initially MPL increases and after that MPL decreases. Again the firm uses a fixed amount of equipment in the production. It means there is a fixed cost involved in the production. In the short run only firm incurs fixed cost.

b)

c) From third to fifth labor, there is increasing return. Because MPL increase from third to fifth labor. Diminishing marginal return starts from sixth labor.

Labor TP MPL APL = TP/L 0 0 1 40 40 40 2 100 60 50 3 240 140 80 4 440 200 110 5 660 220 132 6 860 200 143.33 7 960 100 137.14

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