Question

Short Answer (5 pts) 16.) Explain why marginal cost initially decreases and then increases, creating a curve that looks like the Nike "swoosh" Table (10 pts) To start up a small part time business assume your only costs are paying $1,000 to rent a small factory and paying each employee you hire $100. Based on the previous information complete the following table and answer the questions that follow. Q TFCTVC TCMC AFC AVC ATC TPMP O 0 0 0 10 WNHO 25 35 40 17.) If you decide to hire 3 employees what will TFC be equal to? 18.) If you decide to hire 4 employees what will TVC be equal to? 19.) If you decide not to hire any employees what will TC be equal to? 20.) If you decide to hire 4 employees what will MC be equal to? KEY: L = Labor (# of employees) Q = Quantity TFC = Total Fixed Costs TVC = Total Variable Costs TC = Total Cost MC = Marginal Cost AFC = Average Fixed Cost AVC = Average Variable Cost ATC = Average Total Cost TP Total Product MP = Marginal Product AP = Average Product 21.) If you decide to hire 3 employees what will AFC be equal to? 22.) If you decide to hire 2 employees what will AVC be equal to? 23.) If you decide to hire 1 employee what will ATC be equal to? 24.) If you decide to hire 4 employees what will TP be equal to? 25.) If you decide to hire 1 employee what will MP be equal to? 26.) If you decide to hire 2 employees what will AP be equal to?

Answer 1

16) marginal cost of production measures the change in total cost due to change in the production level of that good, thus MC =ΔTC/ΔQ
thus a lower marginal cost implies that the firm is operating at lower level of fixed cost at that particular level whereas it starts to increase after certain level due to increase in its variable cost of production due to diminishing returns to scale

labor-productivity = total output produced/ total labor used
Marginal Product of Labor = (change in output production / change in input Labor)

L	Q	TFC	TVC (100*L)	TC	MC(ΔTC/ΔQ)	AFC (TFC/Q)	AVC (TVC/Q)	ATC(TC/Q)	TP (Q)	MP(ΔQ/ΔL)	AP (Q/L)
0	0	1000	0	1000					0
1	10	1000	100	1100	10	100	10	110	10	10	10
2	25	1000	200	1200	6.666667	40	8	48	25	15	12.5
3	35	1000	300	1300	10	28.57143	8.571429	37.14286	35	10	11.66667
4	40	1000	400	1400	20	25	10	35	40	5	10

17) $1000
18) $400
19) it will be the sum of total fixed cost and total variable cost at that level of production
20) $20
21) $28.57
22) $8
23) $110
24) 40 units
25) 10 units
26) 12.5 units (aprox. 13 units)