The information in the following table is for a coffee shop. The wage at this fi
ID: 1208942 • Letter: T
Question
The information in the following table is for a coffee shop. The wage at this firm is $10.
Complete the table, and explain how you calculated each column.
a) What happens to the marginal product of labor as the coffee shop employs more workers? Explain in 1-2 sentences why this happens.
b) What happens to the marginal cost of labor as the coffee shop employs more workers? Explain in 1-2 sentences why this happens.
c) Labor costs are just one example of a kind of a cost faced by the coffee shop. What are three other costs that a coffee shop normally has to incur in order to operate? List at least one variable cost and one fixed cost in your answer and explain each one.
Workers Output ( Cups of Coffee) Marginal Product of Labor (change in output divided by the change in number of workers) Labor Cost Marginal Cost of Labor ( Change in Labor Cost divided by the change in output) 0 0 -------------------- 0 ------------------- 1 6 1 x $10= $10 2 14 2 x $10 = $20 3 21 3 x $10 = $30 4 27 4 x $10 = $40 5 31 5 x $10 = $50 6 33 6 x $10 = $60 7 34 7 x $10 = $70Explanation / Answer
MPL = change in output/change in workers.
MCL = change in labour cost/change in workers.
a. When the coffee shop employs more workers, initially the MPL increases till 2nd worker and then it falls after 3rd unit is hired. This is because the diminishing retuns come into picture as in the short run the fixed factors cannot be changed.
b. the maginal cost is increasing as the number of workers employed increases as more workers are employed the cost increases as the firm has to pay for the services employed and also that hiring more workers only increase the cost as the output is increasing at a decreasing rate.
c. The other three types of costs incurred are - fixed cost like rent and utilities. variable cost like raw materials (coffee/milk/sugar) and opportunity cost.
the fixed cost are the cost which do not change with the level of output and remain fixed in the short run. These are the rent of the space of the coffee shop. also the utilities like the electricity/water furnishings etc.
the variable cost are those cost which change with the level of output. these are the cost of raw materials bought, if the coffee shop needs to increase its sales, the raw materials would be bought more and the variable cost would increase.
opportunity cost is the cost of the next best alternative. This cost is taken into considerations while calculating the profits of the firm.
WORKERS OUTPUT MPL LABOUR COST MCL 0 0 nil 0 nil 1 6 6 10 1.67 2 14 8 20 1.25 3 21 7 30 1.43 4 27 6 40 1.67 5 31 4 50 2.5 6 33 2 60 5 7 34 1 70 10Related Questions
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