Problem 1:
1. The following table shows for a simple production function.
|
Capital (K)
|
Labor (L)
|
Total Product (TP)
|
Average Product (AP)
|
Marginal Product (MP)
|
|
10
|
0
|
0
|
-
|
-
|
|
10
|
1
|
5
|
|
|
|
10
|
2
|
15
|
|
|
|
10
|
3
|
30
|
|
|
|
10
|
4
|
50
|
|
|
|
10
|
5
|
75
|
|
|
|
10
|
6
|
85
|
|
|
|
10
|
7
|
90
|
|
|
|
10
|
8
|
92
|
|
|
|
10
|
9
|
92
|
|
|
|
10
|
10
|
90
|
|
|
a. From the information in the table, calculate marginal and average products.
b. Graph the three functions (put total product on one graph and marginal and average products on another)
c. For what range of output does this function have diminishing marginal returns?
d. At what output is average product maximized?
2. Jim is considering quitting his job and using his saving to start a small business. He expects that his costs will consist of a lease on the building, inventory, and wages for two workers, electricity, and insurance.
a. Identify which costs are explicit and which are opportunity (Implicit) costs.
b. Identify which costs are fixed and which are variable.
3. The following table shows data for the simple production function used in question 1. Capital costs this firm $20 per unit, and labor costs $10 per worker.
|
K
|
L
|
TP
|
TFC
|
TVC
|
TC
|
AFC
|
AVC
|
ATC
|
MC
|
|
10
|
0
|
|
|
|
|
|
|
|
|
|
10
|
1
|
|
|
|
|
|
|
|
|
|
10
|
2
|
|
|
|
|
|
|
|
|
|
10
|
3
|
|
|
|
|
|
|
|
|
|
10
|
4
|
|
|
|
|
|
|
|
|
|
10
|
5
|
|
|
|
|
|
|
|
|
|
10
|
6
|
|
|
|
|
|
|
|
|
|
10
|
7
|
|
|
|
|
|
|
|
|
|
10
|
8
|
|
|
|
|
|
|
|
|
a. From the information in the table, calculate total fixed cost (TFC), average variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC),, and marginal cost (MC).
b. Graph your results, putting TFC, TVC, and TC on one graph and AFC, AVC, ATC, and MC on another.
c. At what point is average total cost minimized? At what point is average variable cost minimized?
Problem 3:Industry studies often suggest that firm may have long run average cost curves that show some output range over which there are economies of scale and a wide range of output over which long-run average cost is constant; finally, at very high output, there are diseconomies of scale.
a. Draw a representative long-run average cost curve, and indicate the minimum efficient scale.
b. Would you expect that firms in an industry like this would all produce about the same level of output? Why?
Problem 3: The following graph shows economies of scale in the beer brewing industry.
a. What does this graph tell us about the nature of economies of scale in the beer brewing industry?
b. What are the particular problems associated with the firm represented by the SATC curve shown in the graph? Does it represent a firm that would be able to survive over time?