Extra Problems Sheet 2

Ch 5 - Production and Cost Analysis in the Short Run

Problem 1 MPL & APL

The table below shows the technology of production at the Matsuko's Mushroom Farm for the
month of May 2007.

Number of Mushrooms per Average product Marginal

Workers Day (pounds) of labor product of labor
1 12
2 30
3 45
4 50
5 54
6 56

1- Fill in the missing parts in the table (Show the needed calculations)
2- What is the marginal product of the 4th worker?
3- What is the average product of labor when the farm hires 5 workers?
4- Diminishing marginal returns sets in at the ________ worker is hired.
5- Illustrate graphically the APL and MPL.
Problem 2 TC Graphically

Refer to the information provided in the figure below to answer the questions that follow

1- What is the average fixed cost of producing 2 units of output?

2- What is the value of TVC and AVC at output level of 3

3- What is MC at output level 3

Problem 3 Average Costs Table

Bill’s Bakery has a fire and Bill loses some of his cost data. The bits of paper that he recovers
after the fire provide the information in the following table (all the cost numbers are dollars). Bill
asks you to come to his rescue and provide the missing data in the five spaces identified as A, B,
C, D, and E

TP AFC AVC ATC MC

10 120 100 220 -
20 A B 150 80
30 40 90 130 90
40 30 C D 130
50 24 108 132 E
Problem 4 MPL & MC

The following are the information of a firm:

Capital Labor Total Marginal Physical

TC Marginal cost
(units) (units) Production product
1 0 0 40
1 1 20 70
1 2 50 100
1 3 75 130
1 4 95 160
1 5 110 190
1 6 120 220
1 7 125 250

1- Fill in the table above.

2- Is the firm operating on the short run or the long run, and why?
3- What does the MC mean?
4- What is the relation betwenn MPP and MC.

Problem 5 Cost Table

A firm’s cost curves are given by the following Table

Q TC TFC TVC AVC ATC MC

0 $100 $100
1 130 100
2 150 100
3 160 100
4 172 100
5 185 100
6 210 100
7 240 100
8 280 100
9 330 100
10 390 100

1- Complete the table above

 2- Graph ATC AVC and MC on the same graph. What is the relation between ATC and MC
curves? And what is the relation between AVC and MC curves.

Problem 6 Profit Table

The Total Cost function for a given firm is of the form:

Where is the output
The firm sells its production at $5 per unit.
1- Complete the table below by calculating, for each production level, Total Cost, Total
Revenue, Profit, Total Variable Cost and Average Variable Cost.

Q TC TR Profit TVC AVC

100

200

300

400

500

60
0

2- Referring to the above table, what is the breakeven quantity?

3- Calculate the breakeven quantity algebraically. Illustrate the case graphically.
4- Assume the firm wants to reach a profit of $1200. What quantity of output would allow
the firm to reach the desired profit level?
 Problem 7 Cost Equations

The Total Cost is given by: TC(q) = 10 + 10 q−4q2 + q

1- Give the marginal cost function
2- Give the average cost function
3- Give the average variable cost function
4- Give the average fixed cost function

Problem 8 Cost Table

Total Marginal
TC FC VC AVC AFC ATC
Production cost
0 10
8 15 1.25 1.88 0.63
14 20 0.71 1.43 0.83
19 25 0.79 1.32 1.00
23 30 0.87 1.30 1.25
26 35 0.96 0.38 1.67
28 40 1.07 0.36
29 45 1.21 0.34 1.55

1- Fill in the table above.

2- Sketch AVC, ATC, and MC on the same graph. (Show the point of intersection between MC
and AVC and MC and ATC.
3- What is the relationship between AVC and MC curves, what is the relationship between ATC
and MC curves?
 Problem 9 Average Costs Graphically

1- At Q = 20 units, compute TVC and TC.

2- Compute the firm’s Total Fixed costs.
3- At Q=10 units, compute AFC. What happens to AFC as the quantity of output increases
from 10 to 20 units?
4- What is the relationship between AVC and MC curves, what is the relationship between
ATC and MC curves?

Problem 10 Cost table

Total Marginal Physical Variable Marginal

Capital Labor Fixed Cost Total Cost
Production product Cost cost
2 0 0
2 1 2
2 2 5
2 3 10
2 4 14
2 5 17
2 6 19
2 7 20

1- Given that the wage per worker is 10$ and the only variable cost is the wage of workers.
Fill In the table above by showing the formulas you have used.
MPP=

FC =

VC=

TC=

MC=

2- What is the relation between MPP and MC?

Problem 11 Cost Equations

If a production function is given by the equation Q = 12X + 10X2 - X3, then calculate the
equations for:
1- Average product
2- Marginal product
3- Point of diminishing marginal returns

Problem 12 MPL & APL

Samia is planning to open a SFIHA snack during this summer vacation. She is trying to make an
estimation that would help her in taking decisions about determining the level of production and
the price.
Total product Marginal Average
Labor (hours)
(units) product product
0 0 - -
1 30
2 45
3 140
4 30
5 190

Try to help Samia and:

1- Complete the table above calculating TP, MP and AP.
2- Draw on a graph the MP as a function of labor hours.
Problem 13 MPL & APL
Firm XYZ shows the following production figures:
Number of Total product Average product Marginal Product
workers of labor of labor
0 0
1 10
2 18
3 25
4 31
5 35
6 37
7 37
1- Complete the table (APL and MPL)
2- Does the Law of Diminishing Return apply to these data?
3- Illustrate graphically the APL and MPL
Problem 14 MPL & APL

The table above shows the weekly relationship between output and number of workers for a
factory with a fixed size of plant.
Number of
Output MPL APL
Workers
0 0
1 50
2 110
3 300
4 450
5 590
6 665
7 700
8 725
9 710
10 705

1- Calculate the marginal product of labor.

2- At what point do diminishing returns set in?
3- Calculate the average product of labor.
4- Explain the relationship between the marginal product and the average product of labor.