Name : Marg’riette V.

Pascua Course & Year: BSA 1-2

Time Started________ Time Finished ________________ Date Performed______________

THEORY OF PRODUCTION
Activity No. 6

1. Define the following terms: production function, average product, marginal product, law of diminishing
marginal returns, constant returns to scale, increasing returns to scale and decreasing returns to scale.

*Production Function = A mathematical equation that determines the link between the elements and
quantity of production input and the quantity of production input and the number of things produced
most efficiently. It provides solutions to questions like marginal productivity, level of production, and the
cheapest mode of production of items.

*Average Product = Is the average output generated by each input. It is a method for businesses to
calculate the overall output produced by a specific mix of variable inputs.

*Marginal Product = Is the additional output by adding one unit of input to the existing mix of productive
variables.

*Law of Diminishing Marginal Return = This Is an economic principle saying that if investment in a certain
sector increases, the rate of profit from that investment cannot continue to increase after a certain point if
other variables remain constant.

*Constant Returns to Scale = This Is an economic condition in which a company’s inputs, such as capital
and labor, rise at the same rate as its outputs or the value of its commodities. Long-run measurements are
returns to scale.

*Increase Returns to Scale = Characterizes a business in which the pace f rise in output exceeds the rate of
increase in input

*Decreasing Returns to Scale = Refers to the production in which the average cost of output rises as the
level of output rises.

2. Complete the table below:

Variable input Total Product Average Product Marginal Product
(Labor)

0 0 0 0
 10 250 25 200

20 600 30 350

30 1200 40 600

40 1900 47.5 700

50 2700 54 800

60 3600 60 900

70 4400 62.86 800

80 5000 62.5 600

90 5425 60.28 425

100 5700 57 275

110 5825 52.95 125

120 5900 49.17 75

130 5925 45.48 25

140 5875 41.96 -50

With the values in the above table, plot Total Product (TP), Average Product (AP) and Marginal Product (MP) in
a single graph with units of product at the vertical axis and labor units at the horizontal axis. You can also use
two (2)graphs (TP above AP and MP curves) Label your graphs properly. Use graphing paper for your curves
if you do not have computer/laptop access but insert graph is recommended.
7000

6000

5000

4000

3000

2000

1000

-1000

TP MP

AP
70

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50

40

30

20

10

AP
3. Describe the shapes of the curves drawn. What relationship can you observe between TP and AP curves? How
about between MP and TP curves? AP and MP curves?

The AP curve rises first and then falls, but it remains positive as long as the TP is positive. The MP curve increases
initially, then become zero when TP reaches its maximum, and then becomes negative. Because of the operation of
the Law of Diminishing Marginal Returns, the MP and AP initially increase and subsequently fall. AP increases as
long as MP is greater than AP

4. With the relationship between.n AP and MP curves, delineate and describe the three stages of production.

Stage 1: Increase AP, reaches maximum MP reaches maximum, then declines and intersects at the highest portion
of AP, TP is increasing at an increasing rate

Stage 2: Declining AP

MP is declining and reaches zero. TP is increasing at a decreasing rate until it reaches its maximum

Stage 3: Still declining AP

MP becomes negative. TP is declining.

 COSTS OF PRODUCTION
Activity No. 7

1. What is the opportunity or alternative cost doctrine? Relate its use as basis why resources command
economic costs?

This refers to what you must forego in order to obtain what you desire in terms of other commodities or
services. When economist say “cost”, they usually mean “opportunity cost”. This help in maximizing
economic gains, and help deciding efficient exploitation of existing resources. Capital, labor, and land
are not unlimited; they are limited.

2. Differentiate the following pairs of terms:

a. explicit vs implicit costs
Explicit cost are out-of-pocket expenses for a company, such as labor and salaries, rent, or materials.
Implicit cost are the opportunity cost of resources that the corporation already owns and uses in business, such as
moving a factory onto land that it already owns.

b. fixed vs variable costs

Variable expenses vary according on the amount of output produced. Labor, commissions, and raw
materials are example of variable expenses. Regardless of industrial output, fixed expenses remain constant. Lease
and rental payment, insurance, and interest payments are examples of fixed costs.

c. marginal vs average costs

The difference in total; cost when another unit is produced is referred to as the marginal cost; the average cost
is the total cost divided by the number of units produced.

3. Given a Fixed Cost of 18,000 and a variable cost per unit of P40, complete the table given below:
(X) (TP) TFC TVC TC AFC AVC AC MC

0 0 1800 0 1800 0 0 0 0

10 250 1800 400 18400 72.00 1.60 73.60 1.60

20 600 1800 800 18800 30.00 1.33 31.33 1.14

30 1200 1800 1200 19200 15.00 1.00 16 0.67

40 1900 1800 1600 19600 9.47 0.84 10.31 0.57

 50 2700 1800 2000 20000 6.67 0.74 7.41 0.50

60 3600 1800 2400 20400 5.00 0.67 5.67 0.44

70 4400 1800 2800 20800 4.09 0.64 4.37 0.50

80 5000 1800 3200 21200 3.6 0.64 4.24 0.67

90 5425 1800 3600 21600 3.32 0.66 3.98 0.94

100 5700 1800 4000 22000 3.16 0.70 3.86 1.45

110 5825 1800 4400 22400 3.09 0.76 3.85 3.20

120 5900 1800 4800 22800 3.05 0.81 3.86 5.33

130 5925 1800 5200 23800 3.04 0.88 3.92 16

140 5875 1800 5600 23600 3.06 0.95 4.02 -8

4. Given the values in the above table, prepare graphs for the following set of curves:
a. TFC, TVC and TC curves, with costs on the vertical axis and output on the horizontal axis
25000

20000

15000

10000

5000

TFC TVC TC
 80

70
b. AVC, AFC, AC and MC curves, with costs on the vertical axis and output on the horizontal axis.
60

50

40

30

20

10

-10

-20

AVC AFC AC MC

c. Use graphing paper for your curves if you do not have computer/laptop access but insert graph is
recommended.

PRICE AND OUTPUT DETERMINATION UNDER PURE COMPETITION

 Activity No. 8

A. Complete the table below:

Output TVC TFC TC AVC AFC ATC MC
0 0 60 60 0 0 --

1 45 60 105 45 60 0 45

2 85 60 145 42.50 30 105 40

3 120 60 180 40 20 72.5 35

4 150 60 210 37.50 15 60 30

5 185 60 245 37 13 52.5 35

6 225 60 285 37.50 10 50 40

7 270 60 330 38.57 8.67 47.15 45

8 325 60 385 40.63 7.5 48.13 55

9 390 60 450 43.33 6.67 50 65

10 465 60 525 46.5 6 52.5 75

B. Given the values in the above table, graph the Total Fixed Cost, Total Variable Cost and Total Cost curves with
costs on the vertical axis and output on the horizontal axis. Label all curves properly. Use graphing paper for your
 600

500
curves if you do not have computer/laptop access but insert graph is recommended.
400

300

200

100

0
1 2 3 4
ry ry ry ry
go go go go
te te te te
Ca Ca Ca Ca

TFC TVC TC

C. Superimpose the Total Revenue curves found in item D.

 600

500

400

300

200

100

TR: P=56 TR: P=41 TR: P=32

D.1. Assume a product price of P 56, will this firm produce in the short run? Why or why not?

It will produce short run for the reason that there us one factor that is fixed.

2. Assume a product price of P 41, compute for the TR and superimpose this TR curve in item C.

3. Repeat the same for a product price of P32 and determine the profit/loss to complete the table below
TP TC TR: P=56 Profit/Loss TR: P=41 Profit/Loss TR: P=32 Profit/Loss
0 60 0 -60 0 -60 0 -60

1 105 56 -49 41 -64 32 -73

2 145 112 -33 82 -63 64 -81

3 180 168 -12 123 -57 96 -84

4 210 224 14 164 -46 128 -82

 5 245 280 35 205 -40 160 -85

6 285 336 51 246 -39 192 -93

7 330 392 62 287 -43 224 -106

8 385 448 63 328 -57 256 -129

9 450 504 54 369 -81 288 -162

10 525 560 35 410 -115 320 -205

E. 1. Copy the per unit costs computed in Item A.

Output AVC AFC ATC MC MR: P = 56 MR: P = 41 MR: P = 32
0 0 0 0 -- -- -- --

1 45 60 105 45 56 41 32

2 42.50 30 72.5 40 56 41 32

3 40 20 60 35 56 41 32

4 37.50 15 52.5 30 56 41 32

5 37 13 50 35 56 41 32

6 37.50 10 47.5 40 56 41 32

7 38.57 8.57 47.15 45 56 41 32

8 40.63 7.5 48.13 55 56 41 32

9 43.33 6.67 50 65 56 41 32

10 46.5 6 52.5 75 56 41 32
 2. Graph the average or per unit cost curves. (AFC, AVC, ATC and MC). Label each curve properly.
Chart
Use graphing paper for your curves if you do not Title
have computer/laptop access but insert graph is
recommended.
120
.
100

80

60

40

20

AVC AFC ATC MC

3. Superimpose the MR curves. (Draw the curves using graphing/cross section paper. 4. Highlight answers
 60

50

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30

20

10

MR: P=56 MR: P=41 MR: P=32

Notes: All axes and curves must be properly labeled.

Use colors to distinguish each of the curves in each graph.

Color Code
Black – TFC and AFC Yellow - MC
Blue – TVC and AVC Red – TC and ATC
Green – TR and MR