Question

Problem Two - Using the information in data set one, which I have included in the table below, recalculate total cost, fixed cost, variable cost, marginal cost, average total cost, average variable cost and average fixed costs if the price of the variable input (which is labor in this example) is not $50 but $55. I have created Table 2 for you to put your answers in. Assume that fixed costs remain at $230. When the price of a variable input changes which other costs will increase? Compare the costs you calculate for table two to the costs calculated in table one to find your answers.

TABLE TWO FOR ANSWERS TO PROBLEM TWO

Units of Labor	Total Product (output)	FC	VC	TC	MC	ATC	AVC	AFC
0	0
1	3
2	7
3	12
4	16
5	19
6	21

Answer 1

Units ofTt FC VC labour product TC MC ATC AVC AFC 2300 230 1*55 55 230 +55 285 55/3 18.33 285/3 95 230 | 2*55 110 | 230 1 10=340 | 55/4= 13.75 | 340/7= 48.57 | 110/7= 15.71 | 230/7= 32.86 230 | 3*55 165 | 230 165 = 395 | 55/5 11 230 | 4*55 = 220 | 230 + 220 = 450 | 55/4 = 13.75 | 450/16 = 28.125 | 220/16 = 13.75 | 230/16 = 14.38 230 | 5*55 = 275 | 230 + 275 = 505 | 55/3 = 18.33 | 505/19 = 26.58 | 275/19 = 14.47 | 230/19 = 12.11 230 | 6*55 = 330 | 230 + 330= 560 | 55/2= 27.5 | 560/21 = 26.67 | 330/21 = 15.71 | 230/21 = 10.95 230 55/3 18.33 230/3 76.67 395/12 32.92165/12 13.75 230/12 19.17 12 16 19 21 4 5 Price of labour = $55 ATC MC When price of variable input increases, total variable cost increases, total cost increases, marginal cost increases average variable cost increases and average total cost also increases. fixed cost and average fixed costs remains unchanged. |