Question

2. Consider the graph below which illustrates a given firm's AP and MP curves: AP MP Average and marginal product of labor MP 10 20 40 50 30 Labor a. At what level of output is AVC minimized? Explain your answer. b. When 10 workers are hired, what is the firm's output? c. When 15 workers are hired, what is the firm's AVC if w = 300? d. When 15 workers are hired, what is the firm's SMC if w-300? e. Whne 40 workers are hired, is AVC increasing or decresing? Explain your answer. 3. Suppose the firm's production function is Q = 2KL where is units of output. K is units of capital (which are fixed at 2), and L is units of labor. a. What is the firm's short-run production function? b. Over the labor input usage range of 0 to 5, that is L ranging from 0 to 5. graph the firm's Total Product curve. c. Derive and graph the firm's Average Product curve and the Marginal Product curve. Graph/plot them on the same graph. d. What is different about these AP and MP curves? Does the firm experience any diminishing marginal retums? Why or why not. Explain.

Answer 1

(Question 2)

(a)

AVC is minimized when AP is maximum, at L = 30 and Q (output) = 50.

(b)

When L = 10, AP = 20

Output = L x AP = 10 x 20 = 200

(c)

When L = 15, AP = 30

Output = L x AP = 15 x 30 = 450

TVC = w x L = 300 x 15 = 4500

AVC = TVC/Q = 4500/450 = 10

(d)

When L = 15, TVC = 300 x 15 = 4500

when L = 10, TVC = 300 x 10 = 3000

SMC = Change in TVC / Change in Q = (4500 - 3000) / (15 - 10) = 1500/5 = 300

(e)

When L = 40, AP is decreasing, which signifies that AVC is increasing.

NOTE: As HOMEWORKLIB's Answering Policy, 1st question is answered.