Answer to Question #94398 in Economics of Enterprise for Raihan

Question

Suppose a firm in the short run produces an output, Q by using two inputs: Capital (K) & Labor (L), is the only variable input. Then
A. Calculate average physical product of Labor (APPL)
B. Calculate marginal physical product of Labor MPPL)
C. Assuming w as the fixed wage rate per unit of Labor, Calculate total variable cast (TVC) and show that both average variable Cost (AVC) and marginal cost (Mc) curves are U-shaped.

Answer 1

A. Average physical product of Labor is APPL = TP/L.

B. Marginal physical product of Labor is MPPL = change in TP/change in L.

C. Assuming w as the fixed wage rate per unit of Labor, total variable cost is TVC = w×L.

Both average variable Cost (AVC) and marginal cost (Mc) curves are U-shaped because of decreasing marginal returns.