Answer to Question #249884 in Economics for Maha

Question

The following information is on a hypothetical short-run production funtion:

The price of labor is$35 per unit.Ten units of capital are used each day, regardless of output level. The price of capital is $65 per unit.

(a) fill in the table attached ( you may do this by hand or on Excel and attach in LEO)

(b)When do diminishing returns set in?

Labor

Capital Q MPL FC

VC TC AFC

AVC ATC MC

0 10 0

1 10 50

2 10 150

3 10 300

4 10 400

5 10 450

6 10 475

7 10 475

8 10 450

9 10 400

10 10 300

11 10 150

Answer 1

(a)

L K Q MPL FC VC TC AFC AVC ATC MC

0 10 0 - 650 0 650 - - - -

1 10 50 50 650 35 685 13 0.7 13.7 0.7

2 10 150 100 650 70 720 4.33 0.47 4.8 0.35

3 10 300 150 650 105 755 2.17 0.35 2.52 0.23

4 10 400 100 650 140 790 1.63 0.35 1.97 0.35

5 10 450 50 650 175 825 1.44 0.39 1.83 0.7

6 10 475 25 650 210 860 1.37 0.44 1.81 1.4

7 10 475 0 650 245 895 1.37 0.52 1.88 -

8 10 450 -25 650 280 930 1.44 0.62 2.07 -1.4

9 10 400 -50 650 315 965 1.63 0.79 2.41 -0.7

10 10 300 -100 650 350 1000 2.17 1.17 3.33 -0.35

11 10 150 -150 650 385 1035 4.33 2.57 6.9 -0.23

(b) Diminishing returns set in at L = 4 units of labor.