Question

On the planes Lightover, Andrew Walkenow rend land on which he pows wheat. The table below shows the number of too of wheal per year that can be produced with varying amounts of land. The planctwy government is trying to encourage colonists, so it will provide everything that Andrew needa, libs workers, aquipment, sond, ele for a fal fee of $500 per year. However, Andrew must agree to pay the 3500 whether a Parma the land or not and must also pay $3 a year for every acre of land that he rents. Fill in the table below. Be carefull Tº ATP-AL VC+TCTC QVC Q A FAQ Acror Tong of Wheat MPP TC ATC AVC MC wc 0 X 1 15 201 23 Diminishing marginal retums set in with the - of land D. The average variable contracbesitamines where between the are of land c. Why can't we see the spot where MC - AVC on the table?' .

Answer 1

The table is completed below. Total cost is Fixed cost + Variable cost. Here fixed cost is 500 and variable cost is 5*acres of land. Marginal cost is change in TC/change in TPP. AVC is VC/TPP and ATC is TC/TPP. Also AFC = FC/TPP

Acres of land	Tons of wheat TPP	MPP	Total cost	ATC	AVC	MC	AFC	Variable cost	Fixed cost
0	0		500					0	500
1	5	5	505	101.00	1.00	1.00	100.0	5	500
2	15	10	510	34.00	0.67	0.50	33.3	10	500
3	20	5	515	25.75	0.75	1.00	25.0	15	500
4	23	3	520	22.61	0.87	1.67	21.7	20	500
5	24	1	525	21.88	1.04	5.00	20.8	25	500

a) MPP starts falling with 3rd acre of land. Hence diminishing returns start setting in when 3rd acre of land is rented

b) AVC is minimum at 0.67. This happens between 1st and 2nd acre of land

c) This is because MC = AVC is not occurring at integral values of acres of land. Perhaps AVC is minimum in between the 1st and 2nd acre of land at which MC = AVC also occurs which this table cannot see as it has only integral values of acres of land.