Production/Cost Exercises 1. The following is a short-run production table for a
ID: 1169644 • Letter: P
Question
Production/Cost Exercises
1. The following is a short-run production table for a firm with labor as its only variable input.
Wage = $ 320
Capital = 110
Capital Price= $20
Product Price= $60
a. Determine the following measures at all levels of output:
MPL, APL, TFC, TVC, TC, TR, AVC, ATC, AFC, MC, PROFIT
b. At what level of output is the profit maximized?
c. What kind of observations can you make about MC, price, average total cost and profit ?
Explanation / Answer
(a) All calculations are in following table.
(b) profit is maximized (= 11,160) when Q = 260
(c) Price and MC both are constant throughout (Price = 60 and MC = 320)
ATC first decreases upto output of 260 and then starts increasing, as is expected from its normal U-shaped curve.
Profit starts from a negative (When Q = 0), then increases upto Q = 260 and then starts decreasing.
L Output (Q) MPL APL=Q/L P TR = P x Q MR w K r TC = wL+rK MC FC = rK TVC=TC - FC ATC=TC/Q AVC=TVC/Q AFC=FC/Q Profit = TR - TC 0 0 60 0 320 110 20 2200 2200 0 -2200 1 50 50 50.0 60 3000 3000 320 110 20 2520 320 2200 320 50.4 6.4 44.0 480 2 110 60 55.0 60 6600 3600 320 110 20 2840 320 2200 640 25.8 5.8 20.0 3760 3 160 50 53.3 60 9600 3000 320 110 20 3160 320 2200 960 19.8 6.0 13.8 6440 4 200 40 50.0 60 12000 2400 320 110 20 3480 320 2200 1280 17.4 6.4 11.0 8520 5 230 30 46.0 60 13800 1800 320 110 20 3800 320 2200 1600 16.5 7.0 9.6 10000 6 250 20 41.7 60 15000 1200 320 110 20 4120 320 2200 1920 16.5 7.7 8.8 10880 7 260 10 37.1 60 15600 600 320 110 20 4440 320 2200 2240 17.1 8.6 8.5 11160 8 265 5 33.1 60 15900 300 320 110 20 4760 320 2200 2560 18.0 9.7 8.3 11140 9 260 -5 28.9 60 15600 -300 320 110 20 5080 320 2200 2880 19.5 11.1 8.5 10520 10 250 -10 25.0 60 15000 -600 320 110 20 5400 320 2200 3200 21.6 12.8 8.8 9600Related Questions
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