1. The following table shows the total output (units) produced with various leve
ID: 1110755 • Letter: 1
Question
1. The following table shows the total output (units) produced with various levels of labor and each of two levels capital:
Labor (units) 1 2 3 4
Capital = 2 units 20 50 70 80
Capital = 4 units 40 100 140 160
When capital is fixed at 2 units,
AP decreases after the _______________ (enter first, second, third, or fourth) units of labor;
(b) MP decreases after the _______________ (enter first, second, third, or fourth) units of labor;
(c) at L = 4, AP = ______________ units and MP = ______________ units;
(d) Assume the wage rate of labor is $200. As labor is increased from 1 to 2 units, AVC ______________ (enter rises, falls) from $______________ to $ ___________________.
Please round to whole number and show your work.
10. Suppose a firm is hiring 20 workers at a wage rate of $60. The average product of labor is 30, the last worker added 12 units of output, and total fixed cost is $3,600. Please answer in whole numbers and show your work.
(a) The average total cost is $ _______________.
(b) The marginal cost of the last unit produced is $________________.
Explanation / Answer
Ans:
1)
a) AP decreases after the secound unit of labor
b) MP decreases after the secound units of labor
c) at L = 4, AP = 80 / 4
= 20 units
at L = 4, MP = 80 -70
= 10 units
d) Assume the wage rate of labor is $200. As labor is increased from 1 to 2 units, AVC = falls from 10 i.e.($200/20) to $8 i.e.($400/50).
10) Total output = 20 * 30units
= 600 units
Total cost = (20 * $30) + $36,00
= $600 + $36,00
= $42,00
average total cost is = $42,00 / 600 units
= $7
marginal cost of the last unit produced is = $60 / 12 units
= $5
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