Question

6. The relationship between marginal physical product and marginal cost

Susan's Big Burger is a small restaurant that sells hamburgers. For Susan, grills are a fixed input and workers are variable inputs. Assume that labor is Susan's only variable cost. Susan has a fixed cost of $100 per day and pays each of her workers $80 per day.

Susan's total product schedule and total cost at each level of labor are presented in the following table.

Fill in the blanks to complete the Marginal Physical Product of Labor column for each worker and the Marginal Cost column at each level of labor. (Hint: Marginal cost is the change in total cost divided by the change in the quantity of output. You can calculate it here by dividing the increase in total cost from hiring one more worker by the marginal physical product from hiring one more worker.)

Quantity of Labor	Quantity of Output	Marginal Physical Product of Labor	Total Cost	Marginal Cost
(Workers)	(Burgers per day)	(Burgers per day)	(Dollars per day)	(Dollars per burger)
0	0		$100
1	40		$180
2	120		$260
3	160		$340
4	180		$420
5	190		$500

When hiring the first and second workers, Susan's Big Burger faces___ marginal returns to labor.

Over the range of workers for which the marginal product of labor is increasing, Susan's Big Burger faces____ marginal cost.

7. Various measures of cost

Douglas Fur is a small manufacturer of fake-fur boots in New York City. The following table shows the company's total cost of production at various production quantities.

Fill in the remaining cells of the table.

Quantity	Total Cost	Marginal Cost	Fixed Cost	Variable Cost	Average Variable Cost	Average Total Cost
(Pairs)	(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars per pair)	(Dollars per pair)
0	60				—	—
1	160
2	220
3	270
4	340
5	450
6	630

On the following graph, plot Douglas Fur’s average total cost curve (ATCATC) using the green points (triangle symbol). Next, plot its average variable cost curve (AVCAVC) using the purple points (diamond symbol). Finally, plot its marginal cost curve (MCMC) using the orange points (square symbol).

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

Answer 1

6 . Ans:

Quantity of Labor	Quantity of Output	Marginal Physical Product of Labor	Total Cost	Marginal Cost
( Workers)	( Burgers per day)	( Burgers per day)	( Dollars per day)	( Dollars per burger)
0	0	0	$100	----
1	40	40	$180	$2
2	120	80	$260	$1
3	160	40	$340	$2
4	180	20	$420	$4
5	190	10	$500	$8

Answer to first blank : increasing

Answer to second blank:  decreasing

Explanation:

Marginal physical product of labor = Change in quantity of output / Change in number of Labor

Marginal cost = Change in total cost / change in output

7. Ans:

Quantity	Total Cost	Marginal Cost	Fixed Cost	Variable Cost	Average Variable Cost	Average Total Cost
( Pairs)	( Dollars)	( Dollars)	( Dollars)	( Dollars)	( Dollars per pair)	( Dollars per pair)
0	60	--	60	0	---	---
1	160	100	60	100	100	160
2	220	60	60	160	80	110
3	270	50	60	210	70	90
4	340	70	60	280	70	85
5	450	110	60	390	78	90
6	630	180	60	570	95	105

Explanation:

Total cost = Fixed cost + Variable cost

Average variable cost = Variable cost / Quantity

Average total cost = Total cost / Quantity

Fixed costs are available even at zero level of output.

Ans: