Question

Can someone please help, thank you.

5. Peter Piper plans to pick pickled peppers in his latest get rich quick scheme. He plans to invest his capital in the harvest of pickled peppers and must evaluate exactly what to produce and how much variable input (labor) to employ. As a consultant for Peter Piper, use the information below to complete the analysis of Mr. Piper's production and costs. Keep in mind that the market for pickled peppers is perfectly competitive. Labor Output (L) (Q) Marginal Total Total Product of Fixed Variable Labor (MPL) Cost Cost (TFC) (TVC) 0 0 Total Cost (TC) Average Total Cost (ATC) Marginal Cost (MC) 0 0 n/a n/a 200 2 40 400 4 90 600 6 120 8 8 800 130 7.7 a. Calculate the Marginal Product of Labor for each additional worker. b. Given a Total Fixed Cost of $200 for the land, fertilizer and pickled pepper plants, calculate the Total Fixed Cost and Total Cost, Average Total Cost and Marginal Cost of production for Peter Piper's firm. (You may round to the tenths). C. Identify the unit of labor where we begin to see the Law of Diminishing Marginal Returns. Then explain how the Law of Diminishing Marginal Returns affects: 1) the production and 2) the costs of the firm, and why?

Answer 1

Labour (L)	Output(Q)	MPL	MPL(working)	TFC	TVC	TC(TFC+TVC)	ATC(TC/Q)	MC	MC(working)
0	0	0	given	200	0	200	n/a	n/a	given
2	40	20	(40-0)/2	200	200	400	10	200	400-200
4	90	12.5	(90-40)/4	200	400	600	6.7	200	600-400
6	120	5	(120-90)/6	200	600	800	6.7	200	800-600
8	130	1.25	(130-120)/8	200	800	1000	7.7	200	1000-800

c) The diminishing marginal product says after the capacity additional factor of production will lead to a smaller increase in output. Here it can be seen that from the 4th unit of labour MC decreases.

Law of diminishing marginal returns will cause a smaller increase in production which more labour. Here we can see, output increases by 50 units at 4 two units of labour then it increases by 30 units (smaller increase) at 6 units of labour.

Generally, as extra workers produce less, the cost increases. In this case, AC is can be seen increasing with more units of labour( 6.7 to 7.7).