Question

1. The daily production data of a firm are given below. The wage rate is MYR 20 per day for each labor (variable input) and it is the only variable cost incurred. Additionally, output refers to the total products and it is in hundreds of units.

Labor	Output	AP	MP	TVC	TC	MC	AFC	AVC	ATC
0	0	-	-	20x0=0	40	-	-	-	-
1	18	18	18/1=18	20x1=20	20x18=1.11	20x18=1.11	20x18=1.11	20x18=1.11	20x18=1.11
2	37	37/2= 18.5	19/1= 19	20x2= 40	20/19= 1.05	20/19= 1.05	20/37= 0.54	20/19= 1.05	20/37= 0.54
3	57	57/3= 28.5	20/1= 20	20x3= 60	20/20=1	20/20=1	20/57= 0.35	20/20=1	20/57= 0.35
4	76	76/4= 19	19/1= 19	20x4= 80	20/19= 1.05	20/19= 1.05	20/76= 0.26	20/19= 1.05	20/76= 0.26
5	94	18.8	18/1= 18	20x5= 100	20/18= 1.11	20/18= 1.11	20/94= 0.21	20/18= 1.11	20/94= 0.21
6	111	111/6= 18.5	17/1= 17	20x6= 120	20/17= 1.18	20/17= 1.18	20/11= 0.18	20/17= 1.18	20/11= 0.18
7	127	127/7= 18.14	16/1 = 16	20x7= 140	20/16= 1.25	20/16= 1.25	20/127= 0.16	20/16= 1.25	20/127= 0.16

a. Complete these production data. Calculate the average and marginal product per labor, the total variable cost, total cost, marginal cost, average fixed cost, average variable cost and average total cost for each level. Show your calculations.

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b. Based on your answer above, evaluate the patterns and relationship between:

1. Total product (TP) and marginal product (MP).

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2. Average product (AP) and marginal product (MP).

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3. Marginal product (MP) and marginal cost (MC).

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[Total: 25 marks]

Answer 1

Labor	Output	AP	MP	TVC	TC	MC	AFC	AVC	ATC
0	0	-	-	20x0=0	40	-	-	-	-
1	18	18	18/1=18	20x1=20	20x18=1.11	20x18=1.11	20x18=1.11	20x18=1.11	20x18=1.11
2	37	37/2= 18.5	19/1= 19	20x2= 40	20/19= 1.05	20/19= 1.05	20/37= 0.54	20/19= 1.05	20/37= 0.54
3	57	57/3= 28.5	20/1= 20	20x3= 60	20/20=1	20/20=1	20/57= 0.35	20/20=1	20/57= 0.35
4	76	76/4= 19	19/1= 19	20x4= 80	20/19= 1.05	20/19= 1.05	20/76= 0.26	20/19= 1.05	20/76= 0.26
5	94	18.8	18/1= 18	20x5= 100	20/18= 1.11	20/18= 1.11	20/94= 0.21	20/18= 1.11	20/94= 0.21
6	111	111/6= 18.5	17/1= 17	20x6= 120	20/17= 1.18	20/17= 1.18	20/11= 0.18	20/17= 1.18	20/11= 0.18
7	127	127/7= 18.14	16/1 = 16	20x7= 140	20/16= 1.25	20/16= 1.25	20/127= 0.16	20/16= 1.25	20/127= 0.16

1) relationship between TP & MP

a) as TP increases at increasing rate MP also increases . ( till labour 5

b) as TP increases at diminishing rate MP at its maximum ( at labour 5)

c) as TP increases at diminishing rate MP start falling from ( from labour  6)

d) when TP is maximum MP is 0

e) TP start falls MP goes to negative

2) relationship between AP & MP

a) The AP increases when MP > AP.

(b) The AP is at its maximum when both MP = AP .

(c) The AP decreases when MP < AP.

(d) MP can be positive, 0 or negative, but AP is always positive.

3) relationship between MP & MC

a) MP increases at same time MC falls

b) MP at its maximum point, MC at its lowest point

c) MP start falling where MC start increasing

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