Question

1. When the point of diminishing marginal product is reached, the addition of one more unit of labor will cause total product to ____
2. Diminishing marginal returns (= diminishing marginal product of labor) implies that marginal costs are ____
3. Refer to table below, which gives a firm's production function. Assume that all non-labor inputs are fixed. Diminishing marginal returns set in with the addition of the ________ worker.

   Total product data

   Number of workers	Units of output
   0	0
   1	10
   2	30
   3	44
   4	55
   5	60
   6	60
   7	55

4. Mark's Baseballs produces baseballs. Mark's Baseballs has total fixed costs of $500. Mark's average variable cost is $20, and his average total cost is $25. Mark is currently producing how many baseballs? show work

   Cost data for Candy's Cakes

   # cakes	VC	MC	AVC	FC	TC	ATC
   0	n/a	n/a	n/a		50	n/a
   1		30
   2						50
   3			25
   4					155
   5	140

5. The table above presents the cost schedule for Candy's Cakes. What are total fixed costs if Candy produces four cakes? (show work/explain)
6. The table above presents the cost schedule for Candy's Cakes. What are total costs if Candy produces five cakes? (show work)
7. The table above still presents the cost schedule for Candy's Cakes. What is the marginal costs of the third unit? (show work)
8. The table above now represents the cost schedule for Candy's Canes (she makes walking canes for boomers). What is the average variable cost of producing four canes? (show work)

Answer 1

Ans: When the point of diminishing marginal product is reached, the addition of one more unit of labor will cause total product to increase at a decreasing rate.

Ans: Diminishing marginal returns (= diminishing marginal product of labor) implies that marginal costs are increasing.

Explanation:

Diminishing marginal returns implies that marginal costs are increasing.

Increasing marginal returns implies that marginal costs are decreasing.

Ans: Diminishing marginal returns set in with the addition of the 3 worker.

Explanation:

Marginal product of labor ( MPL) = Change in total output / Change in number of workers

Number of Workers	Units of output	Marginal Product of Labor
0	0	--
1	10	10
2	30	20
3	44	14
4	55	11
5	60	5
6	60	0
7	55	-5

Ans: Mark is currently producing 100 baseballs.

Explanation:

Total fixed costs o= $500.

Average variable cost =  $20

Average total cost = $25.

ATC = AFC + AVC

AFC = ATC - AVC = $25 - $20 = $5

AFC = TFC / Q

5 = 500 / Q

Q = 500/ 5 = 100

Ans: If Candy produces four cakes , total fixed costs are $50.

Explanation:

Fixed costs are available even at zero level of output and remain constant throughout the subsequent level of production.

Ans: If Candy produces five cakes , total costs are $190

Explanation:

Total Cost = Total Fixed cost + Total Variable cost

= $50 + $140 = $190

Ans: The marginal costs of the third unit is $25

Explanation:

MC = Change in TC / Change in Quantity

= ( $125 - $100) / ( 3 - 2) = $25 / 1 = $25

Ans:  The average variable cost of producing four canes is $26.25

Explanation:

AVC = VC / Q

# Cakes	VC	MC	AVC	FC	TC	ATC
0	n/a	n/a	n/a	50	50	n/a
1	30	30	30	50	80	80
2	50	20	25	50	100	50
3	75	25	25	50	125	41.67
4	105	30	26.25	50	155	38.75
5	140	35	28	50	190	38