Question

1. The table below shows the quantity of pizza that can be produced in an hour at a pizza restaurant, depending on how many workers are working. For example, with one worker, the restaurant can produce 13 pizzas in an hour. Show all your calculations for full credit.

Number of employees	Total Product	Marginal Product	Fixed Cost	Variable Cost	Total Cost	Marginal Cost	Average Cost
0	0	-				-	-
1	13
2	25
3	35
4	41
5	42

1. Define marginal product.
2. Calculate the marginal product and fill in the column in the table.
3. Suppose that the fixed costs for the restaurant are $100 and that the workers are paid $20 per hour. Calculate the variable costs and total costs, then fill in the fixed cost, variable cost, and total cost columns.
4. Define marginal cost.
5. Calculate the marginal costs for this restaurant and fill in the column in the table.
6. Define average cost.
7. Calculate the average costs for this restaurant and fill in the final column in the table.

Answer 1

a.

Marginal Product is the additional output which is produced when one more unit of the variable input used in the production is employed ( keeping all other things constant) .

b.

Marginal Product is calculated by dividing change in total product by change in the number of employees.

When number of employees is 1 then change in total product is 13 (13-0=13) and change in the number of employees 1 (1-0=1). So, marginal product when number of employees is 1, is 13/1=13.

When number of employees is 2 then change in total product is 12 (25-13=12) and change in the number of employees 1 (2-1=1). So, marginal product when number of employees is 2, is 12/1=12.

When number of employees is 3 then change in total product is 10 (35-25=10) and change in the number of employees 1 (3-2=1). So, marginal product when number of employees is 3, is 10/1=10.

When number of employees is 4 then change in total product is 6 (41-35=6) and change in the number of employees 1 (4-3=1). So, marginal product when number of employees is 4, is 6/1=6.

When number of employees is 5 then change in total product is 1 (42-41=1) and change in the number of employees 1 (5-4=1). So, marginal product when number of employees is 5, is 1/1=1.

These results are filled up in table below-

c.

Fixed costs are $100 so fixed costs at every level of output produced is same $100 and do not change as number of employees change.

Workers are paid $20 per hour . So, variable cost when 0 number of employees is $0 ($20*0=0),variable cost when 1 number of employees is $20 ($20*1=$20), variable cost when 2 number of employees is $40 ($20*2=$40), variable cost when 3 number of employees is $60 ($20*3=$60), variable cost when 4 number of employees is $80 ($20*4=$80), variable cost when 5 number of employees is $100 ($20*5=$100).

Total cost when 0 number of employee is fixed cost of $100 + variable cost of $0 = $100+$0=$100

Total cost when 1 number of employee is fixed cost of $100 + variable cost of $20 = $100+$20=$120

Total cost when 2 number of employee is fixed cost of $100 + variable cost of $40 = $100+$40=$140

Total cost when 3 number of employee is fixed cost of $100 + variable cost of $60 = $100+$60=$160

Total cost when 4 number of employee is fixed cost of $100 + variable cost of $80 = $100+$80=$180

Total cost when 5 number of employee is fixed cost of $100 + variable cost of $100 = $100+$100=$200

These results are shown in table below-

d.

Marginal Cost is the change in the total cost of production when one more unit of output is produced.