Reference no: EM131017948

Problem Set 7

Question 1

The marginal product of labor (MPL) is the additional output produced when one more worker is hired.

Mathematically:

a) MPL=ΔQ/ΔL

b) MPL=Q/L

c) MPL=(Q₁-Q₀)/L

Question 2

Which of the following definitions is not related to a long run analysis.

a) Total Cost

b) Marginal product of labor

c) Marginal cost

d) Average Cost

e) Fixed Cost

Question 3

When cost rises proportionally less than output, production is characterized by:

a) Constant returns to scale

b) Increasing returns to scale

c) Decreasing returns to scale

Problem 1

1) The following tables give information about costs of a firm.

Complete the tables:

Table A

Q	Total Cost	Fixed Cost	Variable Cost	Marginal Cost	Total Average Cost	Fixed Average Cost	Variable Average Cost
0	$3,500	$3,500
1	$5,000	$3,500	$1,500
2	$5,650	$3,500		$650
3	$6,050	$3,500	$2,550
4	$6,250	$3,500				$875
5	$6,800	$3,500
6	$8,050	$3,500
7	$11,150	$3,500					$1,093
8	$17,500	$3,500			$2,188
9	$27,500	$3,500

Table B

Q	Total Cost	Fixed Cost	Variable Cost	Marginal Cost	Total Average Cost	Fixed Average Cost	Variable Average Cost
0	$0	$0	$0
1	$1,550
2	$2,900						$1,450
3	$4,170		$4,170
4	$5,440				$1,360
5	$6,750
6	$8,050			$1,300
7	$9,449
8	$10,880					$0
9	$12,510

2) Which table, A or B, represents firm's short run situation, and which represents firm's long run situation? How do you know?

3) At what output level would the firm's short run and long run average costs be the same?

Problem 2

The following table gives information about production factors, input costs and the marginal product of labor.

1) Complete the whole table.

 2) Explain the pattern of the marginal product of labor.

Q	Units of Capital	Number of workers	Fixed Cost	Variable Cost	Total Cost	Mg. Product of Labor
0	100	0	$10,000	$0		0.000
1	100	10	$10,000
2	100	18	$10,000	$1,800		0.125
3	100	22	$10,000
4	100	28	$10,000		$12,800
5	100	38	$10,000			0.100
6	100	54	$10,000	$5,400