11.3 Q&A, 11.4 Q&A

What is the difference between the average cost of production (ATC) and the marginal cost of production (MC)?

ATC = TC/Q MC = D-TC/D-Q

The law of diminishing return applies Refer to the table below. When do the diminishing returns in the pizza production start?

In the short-run When the marginal product of labor gets smaller relative to the previous marginal product. In that case, it is with the third worker is hired. (100 vs. 250)

When the marginal product of labor (additional production) is greater than the average product of labor, then the average product of labor must be...

Increasing. (because additional production raises the average)

Is Jill Johnson correct when she is saying: "I am currently producing 10000 Pizzas per month at a total cost of 70000. If I produce 10001 Pizzas, my total cost will rise to 70050. Therefore my marginal cost of producing pizza must be increasing "

Jill's average total cost of production is increasing, so her marginal cost of producing pizzas must be increasing

Consider the table below, which describes the amount of output produced by various quantities of workers. 1) Plot the marginal product of labor 2) Plot the average product of labor

Just draw the table using X for quantity of workers and Y for quantity of work, either average or marginal.

Consider the table below, which describes the amount of output produced by various quantities of workers. Use the four point plot tool to plot the total product curve (1...4)

Just draw the table using X for quantity of workers and Y for total output

Fill in the marginal product and average product of labor in the following table.

Marginal product of labor = difference to previous number or workers. I.e. 1 = 60 | Marginal = 60 2 = 130| Marginal = 70 (130-60=70) Average product of labor = (Marginal product of labor of first worker + ... of second worker + ... of n-th worker)/n (60+70)/2= 65

Refer to the graph on the right. For a certain output range, maginal cost is greater than average cost. What is this output range? When marginal cost is less than average cost, average total cost must be

The Output range greater than about 525 Pizzas per day. decreasing

[Related to making the connection] Briefly explain whether you agree or disagree with the following statement: Adam Smith's idea of the gains to firms from the division of labor makes a lot of sense when the good being manufactured is something complex, but it doesn't apply for less complex goods/

The argument is incorrect. Gains from division of labor will occur whenever production of a good or provision of a service has multiple tasks.

[Related to making the connection] ... Which of the following statements is most true?

The bank loan should not be included in marginal cost because it cannot be avoided by not producing another barrel.

Explain why the marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at minimum?

When the marginal cost of the last unit produced is below the average, it pulls the average down; and when the marginal cost is above the average, it pulls the average up

Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain.

Yes. If marginal cost is less than average total cost, then average total cost will be decreasing.

The table below shows the quantity of workers and total output for a local pizza parlor. Answer the following questions a) When the owner hires 4 workers, the average product of labor is pizzas...? b) The marginal product of the fifth worker is.. c) If the marginal product of the second worker is 6, then the total number of pizzas produced when 2 workers are hired are... d) Assuming the marginal product of the second worker is 6, the law of diminishing return sets in with the....?

a) Average product of labor = (Marginal product of labor of first worker + ... of second worker + ... of n-th worker)/n (3+0+14+5)/4=5.5 b) Marginal product of labor = difference to previous number or workers.: (26-22) = 4 c) (3+9) = 9 Previous marginal product PLUS current marginal p. d) the law of diminishing return sets in whenever marginal product starts to decline, which is when the marginal product of labor gets smaller relative to the previous marginal product. In that case, it is with the fourth worker hired (4 vs. 5)

What is the law of diminishing return? The law of diminishing return states that... Does it apply to the long run?

adding more of a VARIABLE input to the same amount of a FIXED input eventually causes the marginal product of the VARIABLE input to decline No.

How do specialization and division of labor typically affect the marginal product of labor? In the initial stages pf production [...] lead to an increasing marginal product for workers...?

allowing workers to concentrate on a few tasks so that they become more skilled at doing them quickly and efficiently

The GPA you earn in a particular Semester is your {...} and your cumulative GPA for all completed semesters is you {...} GPA

marginal / average

If the marginal product of labor is rising, is the marginal cost of production rising or falling? If the marginal cost from each new worker is rising,

the marginal cost of that output is falling because the only additional cost to produce more output is the additional wages paid to hire more workers.

Refer to the graph on the right. 1) From the origin up until point A...? 2) From point A to point B..?

1) Output increases at an increasing rate 2) Output increases at a decreasing rate

The following problem is somewhat advanced. 1) if the wage Jill pays is constant, then what is D-VC in terms of W and L? 2) Marginal costs equal 3) Use you answer above to determine Jills marginal cost of producing pizza if the wage is $700 and the marginal labor product 200 4) If the wage falls to $600 per week and the marginal product of labor is unchanged, then Jill's marginal costs 5) If instead the wage is unchanged at 700 a week, and the marginal product rises to 250, then Jills marginal cost will...

1) W * D-L 2) W / (D-Q/D-L) 3) 3.5 (700/200) 4) Decreases (600/200)= 3 5) Decrease (700/250) = 2.8

Refer to the table belo. What is the marginal cost of producing the 200th pizza?

3.25

The graph to the right illustrates the average product of labor. Graph the marginal product of labor. Why do the marginal product of labor and the average product of labor have the shapes illustrated in the graph?

Both A and B. A = The marginal product of labor initially increases die to division of labor and then decreases due to diminishing returns. B = Whenever the marginal product of labor is less than the average product of labor, it pulls the average product of labor down.

Is it possible for a firm to experience a technological change that would increase the marginal product of labor while leaving the average product of labor unchanged?

No. An increase in the marginal product of labor will increase the average product of labor

A student looks at the data in the table to the right and draw this conclusion [...] Do you agree with the students analysis? Briefly explain

No. Marginal product initially increases due to specialization and then decreases due to the law of diminishing return

Suppose a firm has no fixed costs, so all of its costs are variable, even in the short term. If the firms marginal costs are continually increasing, will the firms average total cost curve have a U-Shape If the firm's marginal costs are $5 at every level of output, what shape will the firm's average total cost curve have?

No. The average total cost curve will be continually increasing. The firm's average total cost curve will be horizontal.

[Related to solved Problem 4]

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Sally looks at her college transcript and says to you: "How is this possible? My GPA for this semester is higher than my GPA last semester, but my cumulative GPA still went down from last semester to this semester" Explain to Sally how this is possible

Sally's GPA for this semester is lower than her cumulative GPA

Is Jill Johnson correct when she is saying: "I am currently producing 20000 Pizzas per month at a total cost of 80000. If I produce 20001 Pizzas, my total cost will rise to 80050. Therefore my marginal cost of producing pizza must be increasing "

Though Jill's average total cost of production is decreasing, her marginal cost of producing pizzas could be increasing or decreasing