Question

Suppose the output (q) produced by different amounts of labour (L) hired by a firm is given below:
L 0 1 2 3 4 5 6
q 0 3 9 18 24 27 28
(a) Calculate and graph the marginal product curve for labour levels from 1 to 6. Does the firm experience increasing marginal product? decreasing marginal product?
(b) Assume the firm has fixed costs equal to $192 and that each unit of labour costs $36. For each of the 7 possible output levels calculate fixed cost (FC), variable cost (VC), and total cost (TC). Show your full calculations for the output level q =24. Graph the FC, VC, and TC curves.

Answer 1

Answer on Question #48537, Economics, Microeconomics

(a) $\mathrm{MP} = (\mathrm{q2 - q1}) / (\mathrm{L2 - L1})$

The firm experiences increasing marginal product for labour levels from 1 to 3 and decreasing marginal product for labour levels from 4 to 6.

(b) $\mathrm{VC} = \$ 36^{*}\mathrm{L},\mathrm{TC} = \mathrm{FC} + \mathrm{VC}$