Question

Table B
Lion Sandwich Shop
Input Productivity and Costs of Output
L	TP (Q)	APL	MPL	MC	TFC	TC	TVC	AVC
0	0	xxx	xxx	xxx	10			xxx
1	3				10
2	7				10
3	12				10
4	18				10
5	25				10
6	29				10
7	32				10
8	34				10

For these next five problems, use the above Table B. Look at the Mapleton book Problem Set H for great practice in doing this type of problem! You may want to print a copy of the table to fill out. L is the number of workers, and output is measured in sandwiches. Assume a fixed amount of capital. Assume labor is the only variable cost.

1. Fill out the APL column. The APL when 3 workers are hired is _____ sandwiches.

2. Fill out the marginal product of labor (MPL) column. The MPL of the 4th worker is ______ sandwiches.

3. In Table B, diminishing MPL begins with which worker? In other words, which is the first worker who adds less output at the margin than the previous worker?

A. first worker

B. second worker

C. third worker

D. fourth worker

E. fifth worker

F. sixth worker

G. seventh worker

H. eighth worker

I. we do not see diminishing MPL in the table yet.

4. In Table B, assume all workers get paid the same wage rate of w = $40. Assume that TFC = 10. Which of the following is true?  Hint: You can use this wage rate information to fill in the cost columns (MC, TC, TVC, AVC). The costs are found using the costs associated with hiring more workers. Remember also that MC = w/MPL.

A. The marginal cost of sandwiches made by the 6th worker is $10

B. The sandwich with the lowest marginal cost was made by worker #4

C. The marginal cost of sandwiches increases when L increases from 3 to 4

D. The marginal cost of sandwiches decreases when L increases from 6 to 7

5. In Table B, assume all workers get paid the same wage rate of w = $40. Assume that TFC = 10. Consider the average variable cost (AVC). Which of the following is true?

A. The AVC of sandwiches increases when L increases from 2 to 3

B. The AVC of sandwiches is minimized when L = 4

C. The AVC of sandwiches is $8 when 6 workers are employed

D. The AVC of sandwiches is $8 when 5 workers are employed

Answer 1

L	TP (Q)	APL (Q)	MPL (Q)	MC ($)	TFC ($)	TC ($)	TVC ($)	AVC ($)
0	0	-	-	-	10	10	0	-
1	3	3.00	3	13.33	10	50	40	13.33
2	7	3.50	4	10.00	10	90	80	11.43
3	12	4.00	5	8.00	10	130	120	10.00
4	18	4.50	6	6.67	10	170	160	8.89
5	25	5.00	7	5.71	10	210	200	8.00
6	29	4.83	4	10.00	10	250	240	8.28
7	32	4.57	3	13.33	10	290	280	8.75
8	34	4.25	2	20.00	10	330	320	9.41

Formulae used:

APL = TP/L

MPL of Nth worker = TP of N workers - TP of (N-1) workers

MC = Wage Rate/MPL = $40/MPL

TC = TFC + Wage Rate * Labor = TFC + $40L

TVC = TC - TFC

AVC = TVC/TP

Q1.

The APL when 3 workers are hired = 4 sandwiches

Q2.

The MPL of the 4th worker = 6 sandwiches

Q3.

From the table, it can be observed that the MPL increasing up to 5 workers and starts decreasing from the 6th worker.

Ans: F. sixth worker

Q4.

The marginal cost of sandwiches made by the 6th worker = $10. A is correct

The sandwich with the lowest marginal cost is made by 5th worker. B is incorrect

The marginal cost of sandwiches decreases when L increases from 3 to 4. C is incorrect

The marginal cost of sandwiches increases when L increases from 6 to 7. D is incorrect.

Ans: A. The marginal cost of sandwiches made by the 6th worker is $10

Q5.

The AVC of sandwiches decreases when L increases from 2 to 3. A is incorrect

The AVC of sandwiches is minimized when L = 5. B is incorrect

The AVC of sandwiches is $8 when 5 workers are employed. C is incorrect & D is correct

Ans: D. The AVC of sandwiches is $8 when 5 workers are employed