Question

Nimbus, Inc., makes brooms and then sells them to customers. Here is the relationship between the number of workers and Nimbus's output in a given day:

Workers:

1. 0 worker
2. 1 worker
3. 2 workers
4. 3 workers
5. 4 workers
6. 5 workers
7. 6 workers
8. 7 workers

Output:

1. 0 broom
2. 20 brooms
3. 50 brooms
4. 90 brooms
5. 120 brooms
6. 140 brooms
7. 150 brooms
8. 155 brooms

a.)Marginal product / b.)Total cost / c.)Average Total cost / d.)Marginal cost:

1. ?
2. ?
3. ?
4. ?
5. ？
6. ？
7. ？
8. ？

a.)  Construct the marginal-cost and average-total-cost curves for Nimbus. Explain diminishing marginal product and explain when does Nimbus experience diminishing marginal product using the cost curves below.

Answer 1

a)

$Marginal\space product= \frac{Change\space in\space output}{Change\space in\space worker}$

Marginal product initially increases till 3 units of worker and after this marginal product starts to decrease.

The reason for this pattern is due to return to a factor and law of variable proportion.

b.

Worker cost= 100

Fixed cost= 200

Total cost= 200+100(number of worker)

c.

$ATC = \frac{ TC}{output}$

ATC initially decreases and after 5 unit of worker it starts to rise. Here ATC is U-shaped

d.

$Marginal\space cost= \frac{Change\space in\space TC}{Change\space in\space Q}$

MC initially decreases and after 90 units of output it starts to rise. Here MC is U-shaped

a)

Diminishing marginal returns holds that increase in variable input units holding a certain amount of fixed inputs, the output initially grow at a faster rate, then at a steady rate, but ultimately, it will grow at a declining rate.

 Nimbus experience diminishing marginal product  starting from adding the fourth worker.