Answer to Question #223710 in Microeconomics for Saifur Rahman Nilo

Question

Nimbus Company makes brooms and then sells them door to-door. Here is the

relationship between the number of workers and Nimbus’s output during a given day:

workers- 0 1 2 3 4 5 6 7

output- 0 20 50 90 120 140 150 155

a. Fill in the column of marginal products. What pattern do you see? How might you

explain it?

b. A worker costs BDT100 a day, and the firm has fixed costs of BDT200. Use this

information to fill in the column for total cost.

c. Fill in the column for average total cost. (Recall that ATC = TC/Q.) What pattern do you

see?

d. Now fill in the column for marginal cost. (Recall that MC = ΔTC/ΔQ.) What pattern do

you see?

e. Compare the column for marginal product with the column for marginal cost. Explain

the relationship.

f. Compare the column for average total cost with the column for marginal cost. Explain

the relationship.

Answer 1

EXPLANATION

a

WORKERS OUTPUT MARGINAL PRODUCTS TOTAL COST MARGINAL COST

0 0 0 200 0

1 20 20 300 5

2 50 30 400 3.33

3 90 40 500 2.50

4 120 30 600 3.33

5 140 20 700 5.0

6 150 10 800 10

7 155 5 900 20

See the table for the marginal product. Marginal product rises at first, then declines

because of diminishing returns / diminishing marginal product.

b

See the table for the total cost.

c

See the table for the average total cost. The average total cost is U-shaped. When quantity is low, the average total cost declines as quantity rises; when quantity is high, the average total cost rises as quantity rises.

d

See the table for marginal cost. Marginal cost is also U-shaped but rises steeply as output increases. This is due to diminishing marginal product

e

When marginal product is rising, marginal cost is falling, and vice versa.

f

When marginal cost is less than average total cost, the average total cost is falling; the cost of the last unit produced pulls the average down. When marginal cost is greater than average total cost, the average total cost is rising; the cost of the last unit produced pushes the average up