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EC120 Lecture Notes - Marginal Revenue, Average Variable Cost, Average Cost

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apricotcrab808
20 Dec 2013
School
WLU
Department
Economics
Course
EC120
Professor
petersinclair

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EC120 Full Course Notes
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EC120 Full Course Notes
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Document Summary

Chapter 13 -14: marginal product, costs, revenue, and profit. The relationship between the quantity of inputs (workers) and quantity of outputs. Total product (tp) is the total amount of output that is produced during a given period of time. Average product (ap): (of a variable factor) is the tp divided by the number of units the variable factor used to produce it. Helps firms decide whether they can produce more from more inputs. Mp = tp / l slope of the production function (tp); diminishes as l rises because tp gets flatter. Law of diminishing returns: if increasing amounts of a variable factor are applied to a given quantity of the fixed factor, eventually the marginal product of the variable factor declines. Ex: a worker who does everything required to manufacture a product. As more workers are added, each can specialize on one task, and marginal product rises.

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Related Questions

Given the following information for Mary's taco shop (TP, AP, and MP are measured in tacos):

Labor

(L)

Total Product (tacos)

(TP)

Average Product (tacos)

(AP)

Marginal Product (tacos)

(MP)

0

0

--

--

1

 

 

20

2

 

25

 

3

 

 

50

4

150

 

 

5

 

36

 

6

200

 

 

7

 

30

 

8

210

 

 

a) Fill in the blanks above. (Round each answer to the nearest taco)

Please note there are no numbers for MP and AP when output is zero tacos.

b) Define the law of diminishing marginal returns.

c) At which worker (labor) does diminishing returns start? Please explain the reasoning behind your answer.

d) If each taco could be sold for $4 per taco, and each worker is paid $70 per day then, assuming that labor is the only cost of production, how many workers should Mary hire in order to maximize profits? Please explain the reasoning behind your answer.

22) The law of diminishing marginal returns states: A) As the size of a firm's plant increases, average cost eventually decreases. B) As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes. C) As the size of a plant increases, marginal product eventually decreases. D) As a firm uses more of a variable factor or production, total product eventually decreases. E) As a firm uses more of a variable factor of production, its average cost eventually decreases.

12) The law of diminishing marginal returns states: A) As the size of a firm's plant increases, average cost eventually decreases. B) As a firm uses more of a variable factor of production, its average cost eventually decreases. As the size of a plant increases, marginal product eventually decreases. D) As a firm uses more of a variable factor or production, total product eventually decreases. E) As a firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes.