Question

Labor     (TP)    (TFC)    (TVC)      Price    TC          TR              MR            MC

0              0          $10000      0            $7.00   10,000     0                  ----            -----

1          6000     $10000 $60,000     $7.00   70,000    42,000         42,000      60,000

2          22000     $10000 $110,000   $7.00   120,000   154,000       112,000    50,000

3          45000     $10000 $135,000   $7.00   145,000   315,000       161000     25,000       

4          60000      $10000 $240,000 $7.00   250,000   420,000       105000     105,000

5          65000      $10000 $455,000 $7.00   465,000   455,000       35000      215,000

Solve for average product (AP) , Marginal products (MP), Average variable cost (AVC).

Which worker(s) are in the region of diminishing marginal returns?

Why are the MC and MP inversely related to one another?

Answer 1

Answer- 1) Average product (AP) , Marginal products (MP), Average variable cost (AVC) is given below in the table :

Labor	TP	AP	MP	TVC	AVC
0	0	0	-	0	0
1	6000	6000	6000	60,000	60,000
2	22000	11000	16000	110,000	55,000
3	45000	15000	23000	135,000	45,000
4	60000	15000	15000	240,000	60,000
5	65000	13000	5000	455,000	91000

Answer- 2) Diminishing marginal returns set it when the MP curve starts to descending. So, 4 and 5 worker(s) are in the region of diminishing marginal returns.

Answer- 3) Marginal Cost (MC) and marginal Product (MP) inversely related to one another. As one increases, the other will automatically decrease proportionally and vice-versa. If we increase the amopunt of variable factors knowing that fixed factor have already been used upto their maximum limit, then the stage of diminishing returns or increasing cost arises (MP falls and MC starts rising). This is the reason that MC is reciprocal of MP.