Answer to Question #257359 in Microeconomics for Abc

Question

Nimbus Inc makes broom and sells them door to door. Here is the relationship between number of workers and Nimbus output in a given day Worker output 0 0 1 20 2 50 3 90 4 120 5 140 6 150 7 155 Fill in the column of marginal product, total cost, average total cost marginal cost. What pattern do see and explain? A worker costs 100 a day and Firm has a fixed size of 200. Use this data to fill the column total cost

Answer 1

When the marginal product increases, the total product also increases at an increasing rate. This continues till the point where Marginal product reaches maximum level.

The marginal product then begins to decline but remains positive. In this case, total product increases but at a diminishing rate. The marginal product increases initially when an additional input of labor is employed. This is due to diminishing marginal productivity of labor.

It is also noted that marginal product and marginal cost are inversely related. As one increases, the other one decreases. This is attributed to the law of diminishing marginal returns. When marginal product increases, the variable input i.e. labor experiences increasing marginal returns, the marginal cost curve declines in this case.

When the average total cost is at minimum or maximum level, the marginal cost equals average cost.

When average cost increases from minimum value, marginal cost is greater than average cost.