This assignment deals with the calculation and graphing of the short-run relatio

Question

This assignment deals with the calculation and graphing of the short-run relationship between the quantities of labor employed, the output produced, and the cost of this output.
To complete this assignment, you must complete all of the following questions and activities.
Microeconomic Problem

1. Suppose a business finds that output varies according to the following schedule as it adds more workers:

Workers Total Product Marginal Product Average Product
0 0 —
1 10 10
2 25 12.5
3 42
4 58
5 70
Fill in the marginal product and average product columns. Diminishing marginal returns is encountered with the addition of which worker?

2. Notice that average product (that is, output per worker) continues to rise after marginal product has fallen. Why? How can it be that output per worker can rise after the point of diminishing returns has been encountered?


3. Suppose a firm has the following output and cost structure:

Output Total Cost Marginal Cost
0 15
1 25
2 30
3 45
4 65
5 90
6 120
7 155
8 195
9 240
10 290

Fill in the marginal cost column.


Now, answer the following questions based on your completed table:
4. What is the average fixed cost for the third unit of output? (Hint: What type of costs will be encountered at output 0?)


5. What is the average variable cost for the 5th unit of output?


6. What is the average total cost for the 10th unit of output?


7. Why does the marginal cost of producing the product fall and then rise? (What is the relationship between the cost curves and the production function?)


8. What is the relationship between the marginal cost and the average variable and average total costs? You may fill in all the appropriate numbers and draw a graph with MC, TVC, AVC, TC, ATC, TFC, and AFC, if you wish.

Explanation / Answer

Marginal Product Average Product 0----------------0 10--------------10 12.5-----------6.25 14-------------4.6 14.5-----------3.6 14--------------2.8 1) 3rd worker 2. Law of Diminishing Returns does not apply when resources are variable. Only when quantities of variable resources are combined with a fixed resource. 3. Output 0,1,2,3,4,5,6,7,8,9,10. Total Cost 15,25,30,45,65,90,120,155,195,240,290. Marginal Cost 0,25,15,15,16.25,18,20,.6,24.3,26.6,29 4. 50, Output at zero 0 5. 3.3 6. .825 7. ATC =MC It is the firms most efficient point. MCATC = ATC Rising Graph- Output 6- Cost-120-TFC-25-TVC.20-AFC.8-AVC0.6-ATC120-MC.20

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