Question

Question 4: A firm has the following short-run production functions. The total fixed cost of the firm is AED 1,800. The firm pays a wage rate of AED 300 per day for each worker. The firm’s only variable cost is the wages of workers. Calculate the following:           

A. Calculate the Average Product of Labor and the Marginal Product of Labor by filling the empty cells in the following table                                                             (0.5x10=5 Marks)                                                                                                                                                                                                                                     

   

Number of Workers	Total Output (Product)       (per day)	Average Product of Labor APL	Marginal Product of Labor MPL
0	0	-	-
1	40
2	75
3	105
4	130
5	150

B. Calculate the following:                                                                                        

1.  The Average Fixed Cost (AFC) when the total output is 75 units.                    

……………………………………………………………………………………………………..  ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

   

2.  The Average Variable Cost (AVC) when the total output is 75 units.                

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...   

3.  The Average Total Cost (ATC) when the total output is 75 units.                       

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

4.  Calculate the Total Cost (TC) when the total output is 105 units.                       

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Answer 1

Number of Workers	Total Output (Product)	Average Product of Labor	Marginal Product of Labor
(per day)	APL	MPL
0	0	nill	nill
1	40	40	40
2	75	37.5	35
3	105	35	30
4	130	32.5	25
5	150	30	20uct

Average product of labour=

Marginal product of labour= Total product of nth labour-total product of (n-1)th labour

B. Calculate the following:   

1.  The Average Fixed Cost (AFC) when the total output is 75 units.

Average fixed cost=

=

=24

2.  The Average Variable Cost (AVC) when the total output is 75 units.   

Total variable cost when 75 units of output = number of labour* wage per day

=2*300

=600

Average Variable Cost (AVC)=

=

=8

3.  The Average Total Cost (ATC) when the total output is 75 units.

Total cost= total fixed cost+total variable cost

=1800+600

=2400

ATC=

=

=32

Calculate the Total Cost (TC) when the total output is 105 units.

Total cost= total fixed cost+total variable cost

Total fixed cost=1800

total variable cost when output is 105 units = 3*300

=900

Total cost=1800+900

=2700