11. (7 points) The Preservation Embalming Company\'s data have been partially en

Question

11. (7 points) The Preservation Embalming Company's data have been partially entered in the table below. Following the sudden and unexpected death of the company's accountant, you are called on to fill in the missing entries. All inputs are fixed except for amount of embalming fluid used (measured in drums). The relation between the input of embalming fluid and the output (bodies embalmed) varies according to the table below. The cost of embalming fluid is $20 per drum.

Embalming Fluid (drums)

Bodies Embalmed

MP

TVC

TFC

TC

AFC

AVC

ATC

MC

0

0

N/A

24

N/A

N/A

N/A

N/A

1

5

2

13

3

19

4

5

5

28

6

3

(4 points) Fill in the blank spaces in the production and cost functions.

(1 points) What happens to the marginal product of the embalming fluid as more of the embalming fluid is used?

(1 points) Explain why the marginal product behaves this way.

(1 points) Is the Preservation Embalming Company currently in the long run or the short run? Explain.

Embalming Fluid (drums)

Bodies Embalmed

MP

TVC

TFC

TC

AFC

AVC

ATC

MC

0

0

N/A

24

N/A

N/A

N/A

N/A

1

5

2

13

3

19

4

5

5

28

6

3

Explanation / Answer

Q1. Following is the complete table -

Embalming

fluid

Bodies

Embalmed

Q2. As more of the embalming fluid is used, the marginal product of the embalming fluid has first increased (from 1 drum to 2 drums), reached its maximum (2nd drum), and then started decreasing (from 3rd drum onwards).

Q3. The marginal product is behaving this way due to law of diminishing returns. According to the law, as more units of variable factors are added to the fixed factors, each successive addition of variable factor leads to lesser and lesser increase in total product that is marginal product of each successive unit of variable factor goes on decreasing.

Same is observed in the given case. As more drums of embalming fluid (variable factor) are added to the fixed factor, total product is increasing at the declining pace kicking in the diminishing returns resulting in falling marginal product.

Q4. IN the current time period, all inputs of Preservation Embalming Company are fixed except amount of embalming fluid used. It is only in short-run that some factors are fixed while others are variable. So, the Preservation Embalming Company is currently in short-run.

Embalming

fluid

Bodies

Embalmed

MP TVC TFC TC AFC AVC ATC MC 0 0 - - 24 24 - - - - 1 5 5 20 24 44 24 20 44 20 2 13 8 40 24 64 12 20 32 20 3 19 6 60 24 84 8 20 28 20 4 24 5 80 24 104 6 20 26 20 5 28 4 100 24 124 4.8 20 24.8 20 6 31 3 120 24 144 4 20 24 20

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