Question

1. Les Perles, Inc. makes glass beads by hand that are used to make jewelry. Below is the relationship between the number of workers and Les Perles output in a given day: Marginal Product Total Cost Average Total Cost Marginal Cost Workers Output 120 140 150 155 up or down? a. Fill in the column of marginal products. What pattern do you see? b. Suppose 1 worker costs $100 a day and the firm has fixed costs of $200. Use this information to fill in the column for total cost. c. Fill in the column for average total cost. What pattern do you see? d. Fill in the column for marginal cost. What pattern do you see? e. Compare the column for marginal product and the column for marginal cost. Explain the relationship between the two. f. Compare the column for average total cost and the column for marginal cost. Explain the relationship between the two.

Answer 1

Workers MP TC 50 MC ATC 200 ... 300 5 15 400 3.333333 500 2.5 5.555556 600 3.333333 700 5 800 10 5.333333 900 20 5.806452 140 150 155

a.

marginal product of the labor is additional output produced by the additional labor. The MPL is initially increasing, then start decreasing. It means it is inverse U shape.

b.

TC=TFC+TVC

ATC=TC/Q

MC=(TCn-TCn-1)/(Qn-Qn-1)

c.

ATC is U shaped, it means initially it decreases, then start rising.

d.

MC curve is also U shaped, it means initially it decreases, then start rising.