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
|
|
|