PRODUCTION COSTS 1

The Production Costs

Student’s Name

Institution’s Name

Date
PRODUCTION COSTS 2

The Production Costs

1. Marginal Cost is the extra cost that a firm incurs during the production of an extra unit
of the output, while average product is the output per unit of a factor (capital, or labor).
The average peak is achieved at the intersection point between the average product and
the marginal product curve.

2. Marginal product refers to the additional yield generated by an extra employee while
total product refers to the overall yield produced by all employed workers.

3. Marginal cost is the incremental cost connected with the last unit produced. Therefore,
the average cost will reduce in the amount produced when the difference between
average cost from the marginal cost is positive, and the latter cumulates in amount
when marginal cost is extensively surpasses average cost.
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4. Marginal costs are typically increasing and are obtained by acquiring the difference in
total cost and using the variation in output to divide it for every probable change in
yields. Average costs are archetypally U-shaped and are obtained by dividing the total
output using the total cost at every distinct level of output.

5. Marginal cost is extra cost due to production of extra units of goods while total cost is
the total expenditure in production of goods and services.

6. Variation in variable costs consequently creates the variation in marginal costs. Thus,
the slope of the sum of the variable cost curve represents the marginal cost of the
product.

7. Marginal product and marginal cost

Marginal product is the total output change because of the change in a unit of
production factor by one, such as increased number of labour, while marginal cost is
the summation of the costs to generate one supplementary unit of output.
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Marginal product is inversely linked to the marginal costs: as one rises, the other will
automatically decline correspondingly.

8. Average product and average variable cost

The average variable costs are equal to the input prices multiplied by the reciprocal of its
average product and therefore it is the reciprocal of the average product.

9. Suppose the marginal product equals the average product. What can we conclude about
the average product?
This implies that the average commodity is at its maximum worth.
10. Suppose the marginal costs equals the average variable cost. What can we conclude
about the average variable cost?
This indicates that the typical variable costs will rise because an increase in the value
of the yield causes an average dwindle in the fixed cost.
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11. Suppose the marginal product equals the average product. What can we conclude about
the marginal costs?

This implies that the marginal costs is more than the average commodity.

12. Suppose the marginal cost equals the average product. What can we conclude about the
average variable cost and about the average product?

This indicates that the average cost is increasing while the typical product is decreasing.
13. Suppose the marginal product equals the average variable cost. What can we conclude
about the marginal physical product and the average physical product?
This implies that the marginal physical will remain constant while the average [physical
product will significantly reduce.
14. Name the three parts of the long run average cost curve. Describe each of the items.
These are known as the plant curves or SAC’s. The company inspects every SAC to
determine the curve that permits productions at a given level of output at the minimum
cost.
SAC1 is initially chosen although it involves higher costs. Equally, if the firm attempts
to generate an output that is more than OB but less than OD, then it selects SAC2 since
SAC1 includes costs that are higher. Also, for yields greater than OD, the firm uses
SAC3. Summing up, it can be concluded that the firm implements the plant generating
maximum yield at the lowest cost per unit in the long run.

15. What does the MES stand for? What is its significance?
MES stands for the Minimum Efficient Scale and it refers to the lowermost point on a
cost curve at which a company can generate its commodity at a price which is
competitive. At the MES point, the company can accomplish the economies of
scale essential for it to participate effectually in its industry.
16. What is the short run?
This refers to the process of decreasing plant size to produce in the most efficient
manner.
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17. What is the long run?

The particular point in time when all costs are adjustable and it is time specific.
18. What is an opportunity cost?
Opportunity cost is the value of the value of the best forgone alternatives of inputs given
inadequate resources. Through the day to day operations, opportunity costs are
the benefits that have to be predetermined by selecting one substitute over another.
19. What is an explicit cost?
This refers to the costs which encompass an instantaneous expenditure of money from the
company. The cost is sustained when manufacturing processes are going on, or activities
are carried out in the daily operations.
20. What is an implicit cost?
This refers to the cost which the company had foregone while engaging the alternate
course of action. It is the value of detriment completed by the entity at the time of
implementing or carrying out another operation. The cost happens when an asset is
integrated as an aspect of production and profit by the entity rather than renting it out.
21. What is a normal profit?
This refers to the lowest recompence that a company obtains for carrying out operations. .
22. What is the significance of a normal profit?
It validates why the company is still actively engaged in business and calculates the cost
of production.
23. What is an economic profit?
Refers to the total revenue subtract the accounting cost of producing goods and services
24. What is an economic loss?
This refers to the declines in average cost that accompany reduction in scale of output.
25. What is the difference between an accounting cost and economic cost?
Accounting costs refer to the actual financial outlays documented on the records while
economic costs embrace the costs in addition to the opportunity costs. Both regard
explicit costs, although economic cost approaches also regard implicit costs.
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1.A Construct the marginal product schedule for the following production function and construct
the average product schedule.
Labor Total Product Marginal Average
Product Product
0 0 2 1
1 3 13 1.2
2 8 15 1.3
3 15 19 1.6
4 21 3 1.8
5 25 2 1.9
6 26 -1 2.1
7 24 -3 2.2

C. With which worker does the firm experience during diminishing return to labor.
Laborer 5
2. A firm has a policy of life employment Workers acquire their monthly salary despite of current
production schedules. Do the salaries comprise a fixed cost or a variable cost?
The salaries entail a fixed cost because they illustrate the variance between the total commodity
and the marginal product of labor.
B. In the textile industries many employees are paid on the place work system. If workers receive
two dollars per garment and no further compensation, are there labor costs classified as fixed or
variable?
Labor costs are classified as fixed because costs per unit of output that are constant as the scale of
production increases.
3. With 1000 units,
q = 10
VC=55*q = (55) * (10) = 550;
But;
AVC= TVC q = $5500 100 = $550, or $5,500)
Again; TVC= (AVC) * (q).
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Hence, when q = 3, TVC = (3 + 3) * (3) = $18.

Fixed cost = $3.
hence, TC= TVC + TFC,
TC = 18 + 3 = $21.

4.
Wagons Total total total average average average marginal
Produced Cost fixed variable fixed cost variable total cost costs
costs costs cost
0 30 0 15 20 18 20 28
1 60 15 15 20 19 21 28
2 80 16 19 25 19 22 30
3 90 19 27 20 22 27 32
4 110 23 30 25 22 24 35
5 150 24 33 20 29 24 36

A. Construct the schedules for total fixed cost, total variable cost, average fixed cost, average
variable cost, average total cost, marginal costs.
B. Graph the average variable cost, average total cost, and average fixed costs curve.

5. The principal of diminishing marginal productivity suggests that while one input in the
manufacture of certain product is amplified while all other inputs are fixed into place, a point
will ultimately be grasped at which further additions of the input profit increasingly smaller,
or lessening, increases in output.
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2.

Input of labor Workers per Average physical Marginal

week product physical product
0 0 45 60
1 25 48 64
2 60 50 66
3 85 53 67
4 105 57 62
5 115 58 68
6 120 60 69
c). At what point does marginal product begin to diminish?

Marginal product begins diminishing at the intersection point between the average physical
product and the marginal physical product.

12. a). What is the marginal cost of the 101 unit of output?

1000  100unit

This is solved this for labor. 2 1 1000 10l 2 1 100  l 100 10,000

1000

$125,000

AC  $125

b). What is the firm’s average total cost of producing 100 units?

Fixed cost = $30.

Hence, TC=TVC + TFC,

TC = 180 + 30 = $210.

Total revenue =price * quantities of goods:

TR = ($90) * (30) = $270

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c). What is the firm’s average total cost of producing 101 units?

Marginal costs= extra cost incurred in production of a unit of output.

Therefore, TC  $10L  $250K  $10 * (10,000)  $250(100)  $125,000 divided by $ 1000

This gives $125.

You are given the following graph

A. What Output level is AVC at a minimum

At Q3

B. At what output level is ATC at a minimum

At Q5

C. At what output level is MC at a minimum

At Q2