12. The first two columns in the following table give a firm’s short-run product

Question

12. The first two columns in the following table give a firm’s short-run production func- tion when the only variable input is labor, and capital (the fixed input) is held constant at 5 units. The price of capital is $2,000 per unit, and the price of labor is $500 per unit.

a. Complete the table.

b.What is the relation between average variable cost and marginal cost? Between av- erage total cost and marginal cost?

c. Assume that labor—the only variable input of a firm—has the average and marginal What is the relation between average product and average variable cost? Between marginal product and marginal cost

Cost Average cost Units of labor Units of output Average product Marginal product Fixed Variable total Fixed Variable total Marginal Cost 0 0 xx xx xx xx xx xx 20 4,000 40 10,000 60 15,000 80 19,400 100 23,000

Explanation / Answer

b) the average variable cost and marginal cost are equal to each other at all levels of output @500.

the average total cost first increases and then decreases whereas the marginal cost is fixed @500.

c) the average product first increases and then decreases whereas the average variable cost is fixed @500.

the marginal product first increases and then decreases whereas the marginal cost is fixed @500.

Thanks!

COST AVERAGE COST units of labor units of output average product marginal product Fixed variable total fixed variable total marginal cost 0 0 xxx xxx 10000 0 10000 xxx xxx xxx xxx 20 4000 200 200 10000 10000 20000 500 500 100 500 40 10000 250 300 10000 20000 30000 250 500 750 500 60 15000 250 250 10000 30000 40000 166.67 500 666.67 500 80 19400 242.5 220 10000 40000 50000 125 500 625 500 100 23000 230 180 10000 50000 60000 100 500 600 500

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