Module 7 - Behind Supply

What is a cause of diminishing marginal productivity?

In the short run, labor runs out of available capital as more labor gets added to the production process.

Variable cost ______________ while fixed cost ______________ as output ______________ in the short run.

Rises, stays the same, increases

Marginal cost is the slope of _______.

The total cost curve

Samantha is evaluating whether to increase production at her book bindery. If she hires one more worker, she can increase output by 50 books per week. A book binder's weekly wage is $250. Samantha's marginal cost of increasing output by 50 books per week is ________.

$5.00

With increasing marginal cost, if marginal cost is equal to average cost, average cost at this point must be ______________.

At its minimum point

The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost.

decreasing; increasing

Santa Claus's only variable input is labor. The wage he must pay is 200 candy canes per week. What is Santa's total weekly variable cost if he hires 200 elves?

40,000 candy canes

Using the information in the question above, if Samantha's average cost to bind books is $2.50 before hiring the additional book binder, her average cost to bind books will ______________ if she hires the additional worker.

Increase

In your own words, explain why a firm may face diminishing marginal returns to labor as the amount of labor used increases.

Lower marginal returns can happen due to labor getting in its own way, i.e. too many workers that they get in each others way decrease total production.

Will a change in fixed costs change marginal cost?

No

Will a change in fixed costs change total variable cost?

No

Will a change in fixed costs change total cost?

Yes