Suppose that you own an apple orchard and the following chart represents the number

of apples that can be picked from your orchard on a per-hour basis with a given
quantity of capital equipment, such as baskets and ladders.
Cost per
Quanti
Vari
Apple
Appl
Fixed
Total
ty of
abl
(Average
0
0
$10
$0
1
100
10
5
2
210
10
10
3
290
10
15
4
340
10
20
5
360
10
25
a. Complete the table above by calculating the total cost and the average total cost.
b. Does the total cost in the table represent your short-run or long-run total cost?

Suppose that you own an apple orchard and the following chart represents the number of apples that can
be picked from your orchard on a per-hour basis with the given capital equipment, including five baskets.

Quanti
ty of
0
1
2
3
4
5

Quanti
ty of
5
5
5
5
5
5

Apple
0
100
210
290
340
360

Margi
nal
Prod

Avera
ge
Prod

a. Complete the table above by calculating the marginal product of labor and the average product of
labor.
b. Describe the relationship between marginal product of labor and the orchards total production.
Does the law of diminishing returns apply to the orchards production?
c. Describe the relationship between the marginal product of labor and the average product of labor.

The Production Function

Production Function:
Suppose a farmer grows wheat, he has 5 acres of land, and he can hire as many workers as he
wants.

L
(No.
of
work
0
1
2
3
4
5

Q
(bush
els of
whea
0
1000
1800
2400
2800
3000

Below we examine farmer Jack's Marginal Product of Labor (MPL).

L
(No.
of
work
0

Q
(bush
els of
whea
0

1000

1800

2400

MPL

1000
800
600
400

2800

3000

200
2

1. If the number of people in a publishing company does not go up or down with the quantity of books
it publishes, then how should we categorize the salaries and benefits paid to these employees?
a. They are part of fixed cost.
b. They are part of variable cost.
c. They are an implicit cost.
d. They are not considered a part of the cost of production.
2. Refer to the graph below. How much is the value of total fixed cost?

a $2,400
b. $3,400
.c $5,800
d. None of the above; total fixed cost cannot be computed using this
. graph.
1. Refer to the graphs below. Which graph is representative of a typical average total cost curve?

a.
b.
c.
d.

A
B
C
D

2. Refer to the graph below. Based on the relationship between average total cost and marginal cost,
which of the curves below appears to be average total cost?

a.
b.
c.
d.

Curve 1
Curve 2
Both curves appear to be average cost curves.
Neither curve appears to be an average cost curve.

For a certain output range (or quantity of pizzas produced per day), marginal cost is greater than
average cost. What is this output range?
e.
f.
g.
h.

from zero to about 525 pizzas per day

the output range greater than about 525 pizzas per day
the entire output range, from zero to about 640 pizzas per day
exactly 640 pizzas per day

3. Refer to the graph below.

What does Curve 4 represent?

a. average variable cost
b. average total cost
c. average fixed cost
d. marginal cost
At any level of output, what is the vertical distance between Curve 2 and Curve 3 equal to?
e. Curve 1
f. Curve 4
g. total cost
h. marginal cost

4. Refer to the table below. What is the marginal cost of producing the 640th pizza?

a $43.33
b. $650.00
c. $4,050.
00
d. $4,700.
. 00
What is the average total cost of producing 550 pizzas?
a
b.
c.
d.
.

$5.0
0
$6.4
8
$13.
00
$26.
00

5. Refer to the graph below.

Which change in output represents economies of scale in bookselling?

a.
b.
c.
d.

the move from 1,000 to 20,000 books sold per month

the move from 20,000 to 40,000 books sold per month
the move from 40,000 to 80,000 books sold per month
None of the above. Economies of scale cannot be achieved anywhere on the graph.

Which level of output represents the minimum efficient scale?

In what output range do we find constant returns to scale?
Which bookstore is more likely to experience diseconomies of scale?
a. a bookstore selling 1,000 books per month
b. a bookstore selling 20,000 books per month
c. a bookstore selling 40,000 books per month
d. a bookstore selling 80,000 books per month

6. Fill in the blank spaces of this table. Hint: First determine the FC.
Q

VC

10

30

TC

AFC

AVC

ATC

50

n/a

n/a

n/a

10

60.00

10

20

36.67

30

80

16.67

100

150

210

MC

150

12.50

37.50

30

260

8.33

35

43.33

60

Additional practice: PRESENT GRAPH ALL COST CURVES (Hint: Use separate graphs to
present total and average cost curves).