1. Using the following table, answer the following questions. a. Complete the ta
ID: 1106923 • Letter: 1
Question
1. Using the following table, answer the following questions.
a. Complete the table, filling in the answers for marginal and average products.
b. Over how many workers is the firm enjoying increasing returns?
c. At what number of workers do diminishing returns set in?
d. Are negative returns shown in the table?
2. Many amusement parks offer two-day passes at dramatically discounted prices. Universal Studios charges $100 for a one-day, $150 for a two-day pass and $160 for a three-day pass.
a. What is the average cost for the two-day pass and the three-day pass?
b. What is the marginal cost of the two-day pass and the three-day pass?
c. Is marginal cost increasing or decreasing? Why?
labor Output Marginal Product Average Product 0 0 --- --- 1 7 ? ? 2 15 ? ? 3 25 ? ? 4 33 ? ? 5 40 ? ? 6 45 ? ?Explanation / Answer
Answer 1:
a) Firm is enjoying increasing returns till third unit of worker because marginal product starts declining from 10 to 8 after third unit.
b) Diminishing returns start at fourth unit of worker when the marginal return from additional unit employed becomes 8 after the third unit provides a return of 10.
c) Negative returns are not shown in the table as the last unit i.e fifth unit of labour is also generating a positive marginal return of 5.
Answer 2 :
a) Average cost of two day pass will be determined by divided total cost by total days spent in the amusement park i.e 150/2 = 75. Similarly, Average cost of three day pass will be determined by divided total cost by total days spent in the amusement park i.e 160/3 = $ 53.33
b) Marginal cost of two day pass is the additional cost paid by the visiter for visiting the amusement park on second day. In the above case, it would be 150 - 100 = $ 50. Similarly, Marginal cost of three day pass is the additional cost paid by the visiter for visiting the amusement park on third day. In the above case, it would be 160 - 150 = $ 10
c) The marginal cost is decreasing because business is making an attempt to increase total revenue by offering reduced prices of consicutive days spent in the amusement parkl.
labor Output Marginal Product Average Product 0 0 0 0 1 7 7 7 2 15 8 7.5 3 25 10 8.33 4 33 8 8.25 5 40 7 8 6 45 5 7.5Related Questions
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