Question

Complete the table. Assume that the firm has $100 in total fixed costs and that each additional worker costs $50 to hire. At what level of variable input does diminishing returns set in? What is the minimum cost output? Why is it important for a company to know its average total cost per item? Explain why average variable cost decreases then increases? Graph marginal product and marginal cost. What relationship do you see between marginal product and marm: - cost?

Answer 1

Labor

Labour	Output	Marginal Cost	Total Cost	Fixed Cost	Variable Cost
0	0	--	100	100	0
1	7	7	150	100	50
2	15	23	200	100	100
3	25	39	250	100	150
4	33	63	300	100	200
5	40	68	350	100	250
6	45	70	400	100	300

At the level of 5 workers,the average cost start increasing after it,here starts the diminishing returns,. The minimum cost output is 40 because here at this level,average cost is minimum. The company needs to know its average cost bocause it helps the firm to find the level of output which gives it maximum returns. Average variable cost first decreases and then increases because of law of variable proportion.