Costs and Output Assignment Worksheet

Directions

This assignment deals with the calculation and graphing of the short-run relationship between the quantity of labor employed, the output produced, and the cost of this output.

To create the graph, or graphs, for this assignment, use the graphing tool that is provided with this activity. You can access the link within the courseroom. Copy and paste the graph you create into this worksheet.

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:

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:

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.