Question

Assume that a firm has a plant of fixed size and that it can vary its output only by varying the amount of labor it employs. The table below shows the relationships between the amount of labor employed, the output of the firm, the marginal product of labor, and the average product of labor.

              (a)      Assume each unit of labor costs the firm $20. Compute the total cost of labor for each quantity of labor the firm might employ, and enter these figures in the table.

              (b)      Now determine the marginal cost of the firm’s product as the firm increases its output. Enter these figures in the table.

              (c)      If labor is the only variable input, the total labor cost and total variable cost are equal. Find the average variable cost of the firm’s product. Enter these figures in the table.

              (d)      Describe the relationship between the marginal product of labor and the marginal cost of the firm’s product.

              (e)      Describe the relationship between the average product of labor and the average variable cost.

               Quantity                  Marginal   Average     Total                      Average

                of labor     Total     product     product   variable Marginal variable

               employed   output    of labor     of labor       cost          cost          cost    

                      0               0            –––            –––           –––           –––

                      1             10             10             10.00    $_____     $_____     $_____

                      2             22             12             11.00      _____       _____       _____

                      3             36             14             12.00      _____       _____       _____

                      4             48             12             12.00      _____       _____       _____

                      5             58             10             11.60      _____       _____       _____

                      6             66               8             11.00      _____       _____       _____

                      7             72               6             10.28      _____       _____       _____

                      8             76               4               9.50      _____       _____       _____

                      9             78               2               8.66      _____       _____       _____

                    10             78               0               7.80      _____       _____       _____

Answer 1