Question

5. The relationship between marginal physical product and marginal cost Shen's Big Burger is a small restaurant that sells hamburgers. For Shen, grills are a fixed input and workers are variable inputs. Assume that labor is Shen's only variable cost. Shen has a fixed cost of $50 per day and pays each of his workers $50 per day. Shen'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.) Marginal Physical Product of Labor Total Cost Quantity of Labor Quantity of Output Marginal Cost (Dollars per day) (Workers) (Burgers per day) (Burgers per day) (Dollars per burger) 0 $50 0 $100 1 25 $ $150 75 $ 100 $200 $ $250 4 110 diminishing $300 5 115 increasing When hiring the first and second workers, Shen's Big Burger faces marginal returns to labor. Over the range of workers for which the marginal product of labor is increasing, Shen's Big Burger faces marginal cost. AMMAA AMAAA

The second part of this question's options are increasing or decreasing

Answer 1

MPL = Change in Total output / per unit increase in labor

MC = Change in TC / Change in Output

L	Q	MPL	TC	MC
0	0	0	50
1	25	25	100.00	2.00
2	75	50	150.00	1.00
3	100	25	200.00	2.00
4	110	10	250.00	5.00
5	115	5	300.00	10.00

Blank 1 : increasing

Blank 2 : Decreasing