Question

3. The relationship between marginal physical product and marginal cost Lorenzo's Big Burger is a small restaurant that sells hamburgers. For Lorenzo, grills are a fixed input and workers are variable inputs. Assume that labor is Lorenzo's only variable cost. Lorenzo has a fixed cost of $60 per day and pays each of his workers $60 per day. Lorenzo's total product schedule and total cost at each level of labor are presented in the following table. Fill in the blanks to complete the Marginal Physical Product of Labor column for each worker and the Marginal Cost column at each level of labor. (Hint: Marginal cost is the change in total cost divided by the change in the quantity of output. You can calculate it here by dividing the increase in total cost from hiring one more worker by the marginal physical product from hiring one more worker.) Quantity of Labor (Workers) Quantity of Output (Burgers per day) Marginal Physical Product of Labor (Burgers per day) Total Cost (Dollars per day) $60 Marginal Cost (Dollars per burger) 20 $120 $180 $240 $300 $360 When hiring 3 or more workers, Lorenzo's Big Burger faces marginal returns to labor. Over the range of workers for which the marginal product of labor is increasing, Lorenzo's Big Burger faces marginal cost.

Answer 1

L Q mpP 2 3 14 5 20 Po 50 30 70 20 85 15 95 10 TO 60 120 180 940 300 - 360 me - 6%0=3 60/30=2 60/20=3 60/15=4 6/10 = 6 1st blank » (decreasing 2nd block (decreasing [when marginal 0 Product of labor 30 then me is 2 ] is increasing decreasing from po to from 3 to