Production and Cost Analysis in the Short Run. (Microeconomic Analysis)

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1). The following table shows data for a simple production function.

a). from the information in the table, calculate marginal and average products.

Capital (K)	Labor (L)	Total product(TP)	Average product(AP)	Marginal product(MP)
10	0	0
10	1	5
10	2	15
10	3	30
10	4	50
10	5	75
10	6	85
10	7	90
10	8	92
10	9	92
10	10	90

b). Graph the three functions (put total product on one graph and marginal and average products on another).

 c). For what range of output does this function have diminishing marginal returns?

 d). At what output is average product maximized?

2). Jim is considering quitting his job and using his savings to start a small business. He expects that his costs will consist of a lease on the building, inventory, wages for two workers, electricity, and insurance.

a). Identify which costs are explicit and which are opportunity (implicit) costs.

b). Identify which costs are fixed and which are variable.

3). The following table shows data for the simple production function used in Exercise 1. Capital costs this firm $20 per unit, and labor costs $10 per worker.

a). from the information in the table, calculate total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and marginal cost (MC).

K	L	TP	TFC	TVC	TC	AFC	AVC	ATC	MC
10	0	0
10	1	5
10	2	15
10	3	30
10	4	50
10	5	75
10	6	85
10	7	90
10	8	92

b). Graph your results, putting TFC, TVC, and TC on one graph and AFC, AVC, ATC, and MC on another.

c). At what point is average total cost minimized? At what point is average variable cost minimized?

4).   Suppose that a firm’s only variable input is labor. When 50 workers are used, the average product of labor is 50, and the marginal product of labor is 75. The wage rate is $80, and the total cost of the fixed input is $500.

a). what is average variable cost? Show your calculations.

b). what is marginal cost? Show your calculations.

c). what is average total cost? Show your calculations.

d). Is each of the following statements true or false? Explain your answer.

          1). Marginal cost is increasing.

          2). Average variable cost is increasing.

          3). Average total cost is decreasing.