Question

Question 2

Nimbus Inc. makes brooms and then sells them door-to-door. Below you will find the relationship between the number of workers and Nimbus’s output in a given day.

Workers	Output	Marginal Product	Total Cost	Average Total Cost	Marginal Cost
0	0	-	200		-
1	20	20	300	15	5
2	50	30	400	8	3.33
3	90	40	500	5.56	2.5
4	120	30	600	5	3.33
5	140	20	700	5	5
6	150	10	800	5.33	10
7	155	5	900	5.81	20

1. Fill in the column for marginal products. What pattern do you see?

2. A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the total cost column, consult your notes for the formula.

3. Fill in the column for average total cost. What pattern do you see?

4. Now fill in the column for marginal cost. Consult your notes for the formula. What pattern do you see?

5. Compare the column for marginal product and the column for marginal cost. Explain the relationship.

6. Compare the column for average total cost and the column for marginal cost. Explain the relationship.

please use word to answer the questions. thank you

Answer 1

Ans 1)

All the entries done by you are correct.

Formula for Marginal Product=Change in Q /Change in L

Total Cost=Fixed Cost=Variable Cost

Average Total Cost=TC/Q

Marginal Cost=Change in total Cost/Change in output

Ans 3)

Average Total cost shows Increasing return to scale of production that means below efficiency level AC decreases with additional output is produced but as soon as Optimal production level is passed it shows diminishing return to scale. AC curve is also U shaped

Ans 4)

Marginal Cost=Change in total Cost/Change in the output

Marginal Cost is U shaped curve that decreases when Q increases and at point of production where Marginal Cost is lowest that equals Average Cost and after this point MC increases upwards

In given table we can see that at output level Q=140 MC equals to AC where Q<140 we have Marginal Cost less than Average Cost and for Q>140 Marginal Cost is greater than Averge Cost

Ans 5)

Marginal Product of Labor=1/Marginal Cost

We can observe that As Marginal Cost increases Marginal Product decreases and vice versa

Ans 6)

Below efficient output level Average Cost is always greater than Marginal Cost level as we experience increasing return to scale for each addition of unit of input we get higher output hence Marginal Cost increases but below Average Cost as long as MC=AC and after this efficient point Marginal cost is always higher than Average Cost

That Point of Efficient output is 140 where MC=AC=5