Question

You have designed and manufactured a product using all the materials below, following the assumptions provided.

Your product takes 3 minutes to produce - one product can be produced in 3 minutes.

Materials:                                                                   

• - one Styrofoam cup, cost $3 each
• - four popsicle sticks, cost 75 cents each
• - six pipe cleaners, cost 50 cents each
• - five paper clips, cost $1 each
• - four elastic bands, cost 25 cents each

Assumptions:

• - A working day is 8 hours, with 1 hour for lunch, and two 30 minute breaks.
• - Two workers can produce 150 more units of output per day than one worker.
• - Three workers can produce 130 more units of output per day than two workers.
• - Four workers can produce 100 more units of output per day then three workers
• - Five workers can produce 30 more units of output per day then four workers.
• - You may have up to five workers working on your product.
• - You must pay each worker a daily wage of $100.
• - Your monthly factory rental fee is $900

1. a. The fixed inputs used by your company in this simulation include factory space:  Answerproduct materialsfactory spacelabour and product materiallabour

b. The variable inputs used by your company in this simulation are: Answerproduct materialsfactory spacelabour and product materiallabour

2. Fill in the short-run production and cost table using the information given (round to the second decimal point when needed)

Labour	Total Product	Marginal Product	Fixed Costs	Variable Costs	Total Cost	Marginal Cost	Average Fixed Cost	Average Variable Cost	Average Cost
0	Answer		Answer	Answer	Answer
		Answer				Answer
1	Answer		Answer	Answer	Answer		Answer	Answer	Answer
		Answer				Answer
2	Answer		Answer	Answer	Answer		Answer	Answer	Answer
		Answer				Answer
3	Answer		Answer	Answer	Answer		Answer	Answer	Answer
		Answer				Answer
4	Answer		Answer	Answer	Answer		Answer	Answer	Answer
		Answer				Answer
5	Answer		Answer	Answer	Answer		Answer	Answer	Answer

3. Based on your table in the answer to question 2, marginal product begins to fall when the Answerfirstsecondthirdfourthfifth worker is hired.

4.The process of transforming your labour and material into a product in your simulated company is called: Answerproduction.marginal returns.productive efficiency.economic cost.explicit cost

5. The rent that your company pays is: Answeran implicit cost.a fixed cost.a variable cost.not an economic cost.none of the above.

6. The labour and materials used in the simulated company are examples of a(n): Answereconomic cost.implicit cost.opportunity cost.fixed inputvariable input.

7. As you added more labour and materials to your company after some point the additional number of units produced started to decrease. This is called: Answerthe law of demand.the law of supply.the law of decreasing marginal costs.the law of diminishing marginal returns.none of the above.

8. What could be considered an implicit cost of being involved with the simulated business today?

Answer 1

1. a. The fixed inputs used by your company in this simulation include:  

Answer: factory space

b. The variable inputs used by your company in this simulation are:

Answer: labour and product material

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2. When labor = 0, marginal product = total product = 0.

A working day has 8 hours, out of which lunch break is 1 hour and 2 breaks of 30 mins each. hence, total break = 2 hours. So, working hours = 8 - 2 = 6 hours = 360 minutes. It takes 3 minutes to produce a product. Hence, in 360 minutes, a worker can produce 360/3 = 120 products. Hence, when labor = 1, marginal product = total product = 120.

• Two workers can produce 150 more units of output per day than one worker.
• Three workers can produce 130 more units of output per day than two workers.
• Four workers can produce 100 more units of output per day then three workers
• Five workers can produce 30 more units of output per day then four workers.

Hence, marginal products of 2, 3, 4 and 5 labor are respectively 150, 130, 100 and 30 as shown in the table below. The total products are then calculated as cumulative addition of marginal products.

Monthly rental fee of $900 is the fixed cost, which the firm has to pay if it chooses to produce.

The variable cost has two broad components, such as labor cost = number of labor x wage and the material cost = $(3+0.75+0.5+1+0.25)*total product = 5.5 * total product. Total variable cost is calculated using the formula: (number of labor x wage) + 5.5 * total product.

Then total cost is the sum of total fixed cost and total variable cost. Finally, the marginal cost is calculated as cost for an additional unit of output = (change in total cost / change in output).

The first table shows the calculated values and the second table shows the formula view of the calculations,

3. Based on your table in the answer to question 2, marginal product begins to fall when the

Answer: third worker is hired.

4.The process of transforming your labour and material into a product in your simulated company is called:

Answer: production

5. The rent that your company pays is:

Answer: a fixed cost

6. The labour and materials used in the simulated company are examples of a(n):

Answer: variable input

7. As you added more labour and materials to your company after some point the additional number of units produced started to decrease. This is called:

Answer: the law of diminishing marginal returns.

8. What could be considered an implicit cost of being involved with the simulated business today?

Answer: Your own effort in designing the product and managing the firm would be considered as the implicit cost.