EXERCISE: PRODUCTION AND COSTS

1. The following table shows the quantity of labour used at various level of production in a firm.

Labour quantity (units) 0 1 2 3 4 5 6 7 8

Production (units) 0 15 34 51 60 67 71 74 73

a) Calculate the average production and marginal production at each level of labour.

b) Using graph paper, draw the total production, average production, and marginal production curves for each level of labour.

c) State three relationships between average production and marginal production.

2. The following table shows cost information for a firm.

Production (units) 0 10 20 30 40 50 60 70 80 90 100

Total cost (RM) 600 1050 1450 1800 2100 2450 2850 3300 3850 4500 5250

a) Define marginal cost and average cost.

b) At each level of production, calculate: i. ii. iii. iv. Average variable cost Average fixed cost Average cost Marginal cost

c) Using graph paper, draw the average cost, total variable cost, and total fixed cost curves.

3. The following table shows the relationship between a firms total production and total variable cost.

Production (units) Total variable cost (RM)

1 16

2 56

3 82

4 102

5 155

6 124

7 209

8 278

a) Explain the difference between fixed cost and variable cost. b) If the firms fixed cost is RM 50, calculate the firms total cost at each level of production.

c) Using graph paper, draw the total cost, total fixed cost, and total variable cost curves.

d) From the graphs in c, determine the average fixed cost, average variable cost, and average cost at the production level of 5.5 units.