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9-206
25. The table below shows the total production of a firm as the quantity of labor employed increases. The
quantities of all other resources employed are constant. Compute the marginal and average products and
enter them in the table.
Inputs of
labor
Total
product
Marginal
product of
labor
Average
product of
labor
0
0
—
—
1
40
_____
_____
2
100
_____
_____
3
165
_____
_____
4
200
_____
_____
5
225
_____
_____
6
240
_____
_____
7
245
_____
_____
8
240
_____
_____
(a) At what levels are there increasing returns to labor and at what levels are there decreasing returns to
labor?
(b) Describe the relationship between the total product and marginal product.
(c) Describe the relationship between marginal and average product.
Inputs of
labor
Total
product
Marginal
product of
labor
Average
product of
labor
0
0
1
40
40
40
2
100
60
50
3
165
65
55
4
200
35
50
5
225
25
45
6
240
15
40
7
245
5
35
8
240
−5
30
9-207
26. Explain: “Whenever a number which is less than the previous average of a total is added to that total, the
average will necessarily fall. Conversely, whenever a number which is greater than the previous average of
a total is added to that total, the average will necessarily rise.” How does this help explain the relationship
between the various short-run cost curves? Between the various productivity curves?
The statement is simply a fact of arithmetic. To find an average, one sums up the relevant numbers and
27. Complete the following table by finding the average and marginal product. At what input-output level will
average variable cost begin to rise? Explain.
Inputs of
labor
Total
product
Average
product
Marginal
product
0
0
_____
1
8
_____
_____
2
18
_____
_____
3
25
_____
_____
4
30
_____
_____
5
33
_____
_____
6
34
_____
_____
Inputs of
labor
Total
product
Average
product
Marginal
product
0
0
0
1
8
8
8
2
18
9
10
3
25
8.33
7
4
30
7.50
5
5
33
6.60
3
6
34
5.67
1
With equal pay for each worker, average variable cost will begin to rise for the third worker’s output
because that is the point where diminishing returns begin.
28. You are given the following short-run information for an individual firm. Labor (L) is the only variable
input. The price of labor is $200 /week. Fixed costs are $100 /week. Complete the rest of the table.
Describe the relationship between the MP and MC. At which output level does the law of diminishing
returns set in?
Labor
L
Total
product
Q
MP
TVC
TFC
TC
MC
0
0
_____
$_____
$_____
$_____
1
20
_____
_____
_____
_____
$_____
2
55
_____
_____
_____
_____
_____
3
100
_____
_____
_____
_____
_____
4
150
_____
_____
_____
_____
_____
5
200
_____
_____
_____
_____
_____
6
230
_____
_____
_____
_____
_____
7
250
_____
_____
_____
_____
_____
8
263
_____
_____
_____
_____
_____
9
270
_____
_____
_____
_____
_____
10
275
_____
_____
_____
_____
_____
11
278
_____
_____
_____
_____
_____
12
280
_____
_____
_____
_____
_____
Labor
L
Total
product
Q
MP
TVC
TFC
TC
MC
0
0
$ 0
$100
$ 100
1
20
20
200
100
300
$ 10.00
2
55
35
400
100
500
5.71
3
100
45
600
100
700
4.41
4
150
50
800
100
900
4.00
5
200
50
1000
100
1100
4.00
6
230
30
1200
100
1300
6.66
7
250
20
1400
100
1500
10.00
8
263
13
1600
100
1700
15.38
9
270
7
1800
100
1900
28.57
10
275
5
2000
100
2100
40.00
11
278
3
2200
100
2300
66.66
12
280
2
2400
100
2500
100.00
As marginal product rises from 0 to 50, marginal cost falls from $10 to $4. Then marginal product falls
from 50 to 2, as marginal cost increases from $4 to $100. Diminishing marginal returns set in beyond
output level 200.
29. What is the relationship between marginal cost and marginal product?
9-209
30. Why does the short-run marginal-cost curve eventually increase for the typical firm?
9-210
31. Assume that a firm has a plant of fixed size and that it can vary its output only by varying the amount of
labor it employs. The table below shows the relationships among the amount of labor employed, the output
of the firm, the marginal product of labor, and the average product of labor.
(a) Assume each unit of labor costs the firm $20. Compute the total cost of labor for each quantity of
labor the firm might employ, and enter these figures in the table.
(b) Now determine the marginal cost of the firm’s product as the firm increases its output. Enter these
figures in the table.
(c) If labor is the only variable input, the total labor cost and total variable cost are equal. Find the
average variable cost of the firm’s product. Enter these figures in the table.
(d) Describe the relationship between the marginal product of labor and the marginal cost of the firm’s
product.
(e) Describe the relationship between the average product of labor and the average variable cost.
Quantity of
labor
employed
Total
output
Marginal
product of
labor
Average
product of
labor
Total
variable
cost
Marginal
cost
Average
variable
cost
0
0
—
—
—
—
1
10
10
10.00
$_____
$_____
$_____
2
22
12
11.00
_____
_____
_____
3
36
14
12.00
_____
_____
_____
4
48
12
12.00
_____
_____
_____
5
58
10
11.60
_____
_____
_____
6
66
8
11.00
_____
_____
_____
7
72
6
10.28
_____
_____
_____
8
76
4
9.50
_____
_____
_____
9
78
2
8.66
_____
_____
_____
10
78
0
7.80
_____
_____
_____
(a) See table.
Quantity of
labor
employed
Total
output
Marginal
product of
labor
Average
product of
labor
Total
variable
cost
Marginal
cost
Average
variable
cost
0
0
—
—
—
—
1
10
10
10.00
$ 20
$2.00
$2.00
2
22
12
11.00
40
1.67
1.82
3
36
14
12.00
60
1.43
1.67
4
48
12
12.00
80
1.67
1.67
5
58
10
11.60
100
2.00
1.72
6
66
8
11.00
120
2.50
1.82
7
72
6
10.28
140
3.33
1.94
8
76
4
9.50
160
5.00
2.10
9
78
2
8.66
180
10.00
2.31
10
78
0
7.80
200
—
2.56
9-211
32. Assume a firm has fixed costs of $80 and variable costs as indicated in the table below. Complete the cost
table.
Total
product
Total
variable
cost
Total
cost
AFC
AVC
ATC
MC
0
$ 0
$ 80
—
—
—
—
1
110
190
$_____
$_____
$_____
$_____
2
150
230
_____
_____
_____
_____
3
180
260
_____
_____
_____
_____
4
220
300
_____
_____
_____
_____
5
270
350
_____
_____
_____
_____
6
340
420
_____
_____
_____
_____
7
440
520
_____
_____
_____
_____
8
580
660
_____
_____
_____
_____
Total
product
Total
variable
cost
Total cost
AFC
AVC
ATC
MC
0
0
$ 80
—
—
—
—
1
110
190
$800
$110
$190
$110
2
150
230
40
75
115
40
3
180
260
26.67
60
86.67
30
4
220
300
20
55
75
40
5
270
350
16
54
70
50
6
340
420
13.33
56.67
70
70
7
440
520
11.43
62.86
74.29
100
8
580
660
10
72.50
82.50
140
9-212
33. Complete the following short-run cost table using the information provided.
Total
product
TFC
AFC
TVC
AVC
TC
MC
0
$_____
—
$_____
—
$_____
$_____
1
_____
$_____
_____
$12
_____
_____
2
_____
12
_____
10
_____
_____
3
_____
_____
_____
12
_____
_____
4
_____
_____
_____
14
_____
_____
Total
product
TFC
AFC
TVC
AVC
TC
MC
0
$24
—
$ 0
—
$24
—
1
24
$24
12
$12
36
$12
2
24
12
20
10
44
8
3
24
8
36
12
60
16
4
24
6
56
14
80
20
34. In the table below you will find a schedule of a firm’s fixed cost and variable cost. Complete the table by
computing total cost, average fixed cost, average variable cost, average total cost, and marginal cost.
Total
product
Total
fixed
cost
Total
variable
cost
Total
cost
Average
fixed
cost
Average
variable
cost
Average
total
cost
Marginal
cost
0
$100
$ 0
$_____
—
—
—
—
1
100
100
_____
$_____
$_____
$_____
$_____
2
100
180
_____
_____
_____
_____
_____
3
100
240
_____
_____
_____
_____
_____
4
100
320
_____
_____
_____
_____
_____
5
100
440
_____
_____
_____
_____
_____
6
100
600
_____
_____
_____
_____
_____
7
100
800
_____
_____
_____
_____
_____
8
100
1040
_____
_____
_____
_____
_____
9
100
1340
_____
_____
_____
_____
_____
10
100
1800
_____
_____
_____
_____
_____
Total
product
Total
fixed
cost
Total
variable
cost
Total
cost
Average
fixed
cost
Average
variable
cost
Average
total
cost
Marginal
cost
0
$100
$ 0
$ 100
—
—
—
—
1
100
100
200
$100.00
$100.00
$200.00
$100
2
100
180
280
50.00
90.00
140.00
80
3
100
240
340
33.33
80.00
113.33
60
4
100
320
420
25.00
80.00
105.00
80
5
100
440
540
20.00
88.00
108.00
120
6
100
600
700
16.66
100.00
116.67
160
7
100
800
900
14.29
114.29
128.57
200
8
100
1040
1140
12.50
142.50
130.00
240
9
100
1340
1440
11.11
148.89
160.00
300
10
100
1800
1900
10.00
180.00
190.00
460
35. Complete the following short-run cost table using the information provided.
Q
TC
TFC
TVC
AVC
ATC
MC
0
$ 4
$_____
$_____
$_____
$_____
$_____
1
7
_____
_____
_____
_____
_____
2
9
_____
_____
_____
_____
_____
3
10
_____
_____
_____
_____
_____
4
11
_____
_____
_____
_____
_____
5
13
_____
_____
_____
_____
_____
6
17
_____
_____
_____
_____
_____
7
22
_____
_____
_____
_____
_____
9-214
Q
TC
TFC
TVC
AVC
ATC
MC
0
$ 4
$4
$ 0
$0
$0
—
1
7
4
3
3.00
7.00
$3
2
9
4
5
2.50
4.50
2
3
10
4
6
2.00
3.33
1
4
11
4
7
1.75
2.75
1
5
13
4
9
1.80
2.60
2
6
17
4
13
2.17
2.83
4
7
22
4
18
2.57
3.14
5
36. (Consider This) Suppose your friend is currently a nursing major. She decides she wants to switch her
major to economics, but she would lose many of the college credits she has already earned. Explain to her
why the past college credits should not be figured into her marginal benefit and marginal cost calculation.
37. Answer the questions below on the basis of the diagram.
(a) How can you tell if these cost curves are for the short run or the long run?
(b) What does the graph indicate about:
(1) AVC at 6000 units of output?
(2) ATC at 6000 units of output?
(3) AFC at 6000 units of output?
(4) TVC at 6000 units of output?
(5) TFC at all levels of output?
(6) TC at 10,000 units of output?
(7) When diminishing returns set in?
9-215
38. Explain what happens to AFC, AVC, ATC, and MC curves in these two situations: (a) fixed cost increase;
(b) variable cost increase.
39. What effect would each of the following have on the short-run average and marginal costs of an auto
dealership: (a) auto mechanics receive a 10% wage increase; (b) property taxes decrease; (c) auto dealers
institute a one-time only promotional campaign?
40. Explain the circumstances under which a firm might encounter a rather extended range of output over
which long-run average costs are relatively constant.
41. The following are three short-run average total cost schedules for the only three possible plant sizes, 1, 2,
and 3. Find the long-run average cost schedule and show the result in the second table.
Size 1
Size 2
Size 3
Q
ATC
Q
ATC
Q
ATC
10
$1.00
20
$ .95
40
$1.00
20
.90
30
.80
50
.87
30
.85
40
.76
60
.84
40
.88
50
.79
70
.80
50
.93
60
.83
80
.95
60
1.05
70
.90
90
1.05
Long Run
Q
AC
10
$_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
90
_____
9-216
Long Run
Q
AC
10
$1.00
20
.90
30
.80
40
.76
50
.79
60
.83
70
.80
80
.95
90
1.05
42. In the table below are data from a book company that prints and binds special-order books. The data show
various quantities that can be produced by the firm in an hour and the unit costs of each quantity.
(1)
Quantity of
books
(2)
Unit cost A
of books
(3)
Unit cost B
of books
100
$70
$_____
200
60
_____
300
50
_____
400
40
_____
500
35
_____
600
30
_____
700
35
_____
800
45
_____
900
60
_____
1000
80
_____
(a) In the graph below, label the axes and plot the long-run average cost curve for this firm using the data
in columns 1 and 2 of the table above.
(b) The firm then decides to subcontract the binding work to another company that specializes in the
binding of books. As a consequence, the unit costs of the firm are decreased by $20 at each output
level. Fill in column 3 of the table, and then graph the new long-run average cost curve B for the firm
on the graph.
(c) What will be the minimum cost with unit cost A? With unit cost B?
(d) If the firm produces 400 books, what will be the cost with curve A? With curve B?
(a) See graph below.
(b) See table and graph below.
Quantity of
books
(2)
Unit cost A
of books
(3)
Unit cost B
of books
100
$70
$50
200
60
40
300
50
30
400
40
20
500
35
15
600
30
10
700
35
15
800
45
25
900
60
30
1000
80
40
9-217
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
(c) The minimum cost with A will be $30 at 600 units. The minimum cost with B will be $10 with 600
units.
(d) When the firm produces 400 books, the unit cost will be $40 with curve A and $20 with curve B.
43. Below are the short-run average-total-cost schedules for three plants of different size that a firm might
build to produce its product. Assume that these are the only possible sizes of plants that the firm might
build. What is the long-run average-cost schedule for the firm? Show it in the second table below.
Plant size X
Plant size Y
Plant size Z
Output
ATC
Output
ATC
Output
ATC
5
$10
5
$13
5
$72
10
9
10
12
10
65
15
8
15
11
15
52
20
7
20
10
20
41
25
6
25
8
25
33
30
9
30
7
30
20
35
12
35
9
35
15
40
18
40
12
40
14
45
20
45
17
45
12
50
23
50
19
50
14
55
29
55
25
55
20
60
31
60
33
60
30
Output
Average cost
5
$_____
10
_____
15
_____
20
_____
25
_____
30
_____
35
_____
40
_____
45
_____
50
_____
55
_____
60
_____
For what output levels should the firm build plant X, plant Y, and plant Z?
Output
Average cost
5
$10
10
9
15
8
20
7
25
6
30
7
35
9
40
12
45
12
50
14
55
20
60
30
The firm should build plant X for output levels 5 to 25, plant Y for output levels 30 to 40, and plant Z for
output levels 45 to 60.
44. How can diseconomies of scale occur at larger capacities?
45. What factors explain economies of scale?
46. What is minimum efficient scale? What insights would it give about the size of firms in an industry?
47. The values for the long-run ATC curves of three different firms are listed in the table below.
Quantity
ATC 1
ATC 2
ATC 3
5
10
7
12
10
8
6
9
15
7
5
7
20
6
6
6
25
6
7
5
30
6
9
4
35
7
13
6
40
8
17
9
48. Consider the diagram below. Curves 1–8 are the short-run curves that occur with different plant sizes.
Answer the next two questions.
(a) On the graph show the range of outputs for: (1) economies of scale; (2) diseconomies of scale:
Indicate (3) minimum efficient scale.
(b) In the long run, what plant size should the firm build if it wants to produce: (1) 6000 units; (2) 14,000
units?
(a) See graph.
49. What effect does the increase of the price of corn have on the cost curves of a firm producing items like
corn-based cereal or tortillas?
50. What effect does the increase of the price of gasoline have on the cost curves of package delivery firms
such as Federal Express or United Parcel Service? How might the effects differ for a software firm such as
Symantec that uses the Internet?
51. What are some of the sources of cost savings for business start-ups in the U.S. economy such as Google,
Intel, Starbucks, and Microsoft?
52. How would a Verson stamping machine help a firm achieve economies of scale?
9-221
53. Explain how the Internet has affected the average fixed cost of a daily print newspaper.
54. Why are there two plants run by one firm that produce large commercial aircraft and thousands of plants
run by hundreds of firms that produce ready-mix concrete? Explain in terms of economies of scale.
55. (Last Word) The iPhone costs billions of dollars to develop. Discuss why this product is available to the
average person in the United States.
56. (Last Word) Discuss how the 3-D printer is set to make manufactured goods more affordable for the
average person in the United States.
The 3-D printer is set to further reduce the cost of manufactured goods by eliminating two types of costs.
