Question

A perfectly competitive firm has two inputs, capital and labour. Capital is fixed in the short run and costs $100 per day. The firm's short run Total Product information as illustrated in the table below. The price of labour is $10 per hour. The market price for the firms output is $7.75 per unit. It is recommended that you complete the AP MP TFC TVC TC AFC AVC ATC MCMR Labour Hrs/day 76 Output Units/day 120 table to answer the Multiple choice questions. (ans + two decimal places) 7. Given the table, what is the value of Average Product at 80 hours of Labour? A) 1.58 B) 1.75 C) 1.88 D) 0.57 E) 0.571 F) None of the above 8. Given the table, what is the value of Marginal Product if Labour is increased from 80 to 85 hours? A) 5.0 B) 4.0 C) 2.5 D) 0.25 E) 20 F) None of the above 9. Given the table, what is the value of total cost at the quantity of output = 200 units? A) $1140 B) $1040 C) $1030 D) $1240 E ) None of the above

10.Given the table, what is the value of average fixed cost at the quantity of output = 120 units?

A) $100 B) $0.83 C) $1.20 D) $1.32 E) None of the above

Answer and Explain

Answer 1

Labour Hrs/day	Output Units/day	AP	MP	TFC	TVC	TC	AFC	AVC	ATC	MC	MR
76	120	1.58		100	760	860	0.83	6.33	7.17		7.75
80	140	1.75	5.00	100	800	900	0.71	5.71	6.43	2.00	7.75
85	160	1.88	4.00	100	850	950	0.63	5.31	5.94	2.50	7.75
93	180	1.94	2.50	100	930	1030	0.56	5.17	5.72	4.00	7.75
104	200	1.92	1.82	100	1040	1140	0.50	5.20	5.70	5.50	7.75
114	210	1.84	1.00	100	1140	1240	0.48	5.43	5.90	10.00	7.75
126	215	1.71	0.42	100	1260	1360	0.47	5.86	6.33	24.00	7.75

Questio

Question No 7

Average Product at 80 hours

Answer = B) 1.75

Average Product = Total Product (output) ÷ Labour (variable factor)

At 80 hours = 140 ÷ 80 = 1.75

Question 8

Marginal Product when labour increased from 80 to 85 hours

Answer = B) 4

Marginal Product = ∆Output ÷ ∆Labour hrs

MP when labour increased from 80 to 85 hours = (160 – 140) ÷ (85 – 80) = 4

Question 9

Answer = A) $1140

Value of total cost at output of 200 units.

Given fixed cost = $100 remains constant at all output levels

Variable cost is given as $10 per labour hour. At 200 units, labour hour is 104.

So, total variable cost = 104*$10 = $1040

Total Cost = Total FC + Total VC

TC = $100 + 1040 = $1140

Question 10

Average Fixed Cost at output of 120

Answer = B) $0.83

AFC = TFC ÷ Output

TFC = $100

At 120 units, AFC = $100 ÷ 120 = 0.83