The following table gives capital and labor requirements for 10 different levels of production. q K...

The following table gives capital and labor requirements for 10 different levels of production.

q	K	L	Total Cost	Marginal Cost	Average Variable Cost
0	0	0		Answers:
1	6	1	30		30
2	10	3			b.
3	13	5			c.
4	16	7			d.
5	20	9
6	25	11
7	31	13
8	38	15
9	46	17
10	55	19	Assuming that the price of labor (PL) is $6 per unit and the price of capital (PK) is $4 per unit, compute and graph total cost, marginal cost, and average variable cost for the firm. Do the graphs have the shapes that you might expect? Explain. Using the numbers here, explain the relationship between marginal cost and average variable cost. Using the numbers here, explain the meaning of “marginal cost” in terms of additional inputs needed to produce a marginal unit of output.

Expert Solution

Marginal cost of 30 represents, as unit of production increases from 0 to 1, total cost rises by 30.

Marginal cost of 28 at 2 units of production represents that, as units of production is increased from 1 to 2, total cost increases by 28.

Rahul Sunny answered 1 year ago

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