Question

2. Inputs and outputs

Tim's Performance Pizza is a small restaurant in Chicago that sells gluten-free pizzas. Tim's very tiny kitchen has barely enough room for the two ovens in which his workers bake the pizzas. Tim signed a lease obligating him to pay the rent for the two ovens for the next year. Because of this, and because Tim's kitchen cannot fit more than two ovens, Tim cannot change the number of ovens he uses in his production of pizzas in the short run.

However, Tim's decision regarding how many workers to use can vary from week to week because his workers tend to be students. Each Monday, Tim lets them know how many workers he needs for each day of the week. In the short run, these workers are ______ inputs, and the ovens are ______ inputs.

Tim's daily production schedule is presented in the following table.

Fill in the blanks to complete the Marginal Product of Labor column for each worker.

Labor	Output	Marginal Product of Labor
(Number of workers)	(Pizzas)	(Pizzas)
0	0
1	100
2	180
3	240
4	280
5	300

1. On the following graph, plot Tim's production function using the green points (triangle symbol).

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

Hint: Be sure to plot the first point at (0, 0).

Production Function0123453002702402101801501209060300QUANTITY OF OUTPUT (Pizzas)LABOR (Number of workers)

2. Suppose that labor is Tim's only variable cost and that he has a fixed cost of $50 per day and pays each of his workers $40 per day.

Use the orange points (square symbol) to plot Tim's total cost curve on the following graph using the quantities from the preceding table.

Total Cost03060901201501802102402703003002702402101801501209060300TOTAL COST (Dollars)QUANTITY OF OUTPUT (Pizzas)

3. The law of diminishing marginal product of labor is demonstrated by which of the following?

Total output increases at a decreasing rate as you increase the quantity of labor.

Total output increases only when you increase both labor and ovens.

Total output declines as you increase the quantity of labor.

Answer 1

Variable

Workers are variable inputs as their quantity can be changed as per the requirements.

Fixed

Ovens are fixed inputs as 2 ovens will be used for production. These will remain fixed irresepective of any levels of Output.

No. of Workers	Output	Marginal Product
0	0
1	100	100
2	180	80
3	240	60
4	280	40
5	300	20

Production Function 350 300 250 200 Quantity of Output (Pizzas) 150 Output 100 50 0 0 1 2 3 4 5 Labor Hired (No. of Workers)

When Fixed Cost is $50 and Labor Cost is $40

No. of Workers	Output	Fixed Cost	Variable Cost	Total Cost
0	0	50	0	50
1	100	50	40	90
2	180	50	80	130
3	240	50	120	170
4	280	50	160	210
5	300	50	200	250

Total Cost 300 250 200 Total Cost (Dollars) 150 Total Cost 100 50 0 0 100 280 300 180 240 Quantity of Output (Pizzas)

Option A

The law of diminishing marginal product of labor is demonstrated by Total output increases at a decreasing rate as you increase the quantity of labor. Diminishing marginal product of labor can mean that as you add more labor input to a process, you get less output per unit of labor. This can be measured in terms of hours or dollars.