Question

Capital and labor are the only two inputs for the following production process. Capital is fixed at 4 units, which costs 50 dollars each unit per day. Workers can be hired for 100 each per day. Complete the following table and plot the marginal cost (MC), average total cost (ATC), average variable cost (AVC), average fixed cost (AFC) on the same graph.

The quantity of labor input	Total output per day	AFC	AVC	ATC	MC
0	0
1	100
2	250
3	350
4	400
5	425

Answer 1

L	Q	AFC	AVC	ATC	MC
0	0	_	0	0	_
1	100	2	1	3	1
2	250	.8	.8	1.6	.67
3	350	.57	.857	1.427	1
4	400	.5	1	1.5	2
5	425	.47	1.2	1.67	4

As fixed cost FC = K*r

= 4*50

= 200

So AFC = FC/Q

= 200/Q

TVC = L*w

= 100L

So AVC = TVC/Q = 100L/Q

ATC = AVC + AFC

MC = ∆TVC/∆Q

Graphs