1. (50 total points) Joe runs a farm. He rents the land for $100 a day, and he c
ID: 2507472 • Letter: 1
Question
1. (50 total points) Joe runs a farm. He rents the land for $100 a day, and he can hire workers for $20 per day for each worker. His short run production function is given in the first two columns of the following table.
Workers
Output
MP
TVC
TFC
TC
AFC
AVC
ATC
MC
0
0
-------
0
-------
--------
-------
-----
1
10
2
25
3
45
4
60
5
70
6
74
a) (25 points) Complete the table above.
b) (20 points) Carefully graph AVC, ATC, and MC. Your graph should have cost (measured in dollars) on the vertical axis, and output on the horizontal axis.
c) (5 points) With which worker does diminishing marginal returns set in?
2. (10 points) Carefully explain the difference between diminishing marginal returns and decreasing returns to scale.
3. (24 points) Suppose a competitive firm can sell its output for $5 per unit. The following table gives the firm
Workers
Output
MP
TVC
TFC
TC
AFC
AVC
ATC
MC
0
0
-------
0
-------
--------
-------
-----
1
10
2
25
3
45
4
60
5
70
6
74
Explanation / Answer
Workers
Output
MP
TVC
TFC
TC
AFC
AVC
ATC
MC
0
0
-------
0
100
100
-------
--------
-------
-----
1
10
10
20
100
120
100
20
120
20
2
25
15
40
100
140
50
20
70
20
3
45
20
60
100
160
33.33
20
53.33
20
4
60
15
80
100
180
25
20
45
20
5
70
10
100
100
200
20
20
40
20
6
74
4
120
100
220
16.66
20
36.66
20
ans-with 4th worker diminishing marginal returns set in.
ans-the difference between diminishing marginal returns and decreasing returns to scale. diminishing marginal returs means as we employ more and more variable factor in relation to fixed factors, the marginal product of the variable factor first increases then starts decreasing because after a point fixed factors begin to get over utilised..
decreasing returns to scale-decreasing returns to scale sets in when a firm has to bear certain dis advantages as it expands its scale of production, so that the total output increases in a proportion less than the proportion in which the quantity of inputs has been increased.
Workers
Output
MP
TVC
TFC
TC
AFC
AVC
ATC
MC
0
0
-------
0
100
100
-------
--------
-------
-----
1
10
10
20
100
120
100
20
120
20
2
25
15
40
100
140
50
20
70
20
3
45
20
60
100
160
33.33
20
53.33
20
4
60
15
80
100
180
25
20
45
20
5
70
10
100
100
200
20
20
40
20
6
74
4
120
100
220
16.66
20
36.66
20
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