Question

Consider a restaurant where ovens are a fixed input and workers are variable inputs. Assume labor is the only variable cost for the business. The restaurant has a fixed cost of $50 per day and pays each worker $90 per day.

Fill in the blanks to complete the Marginal Physical Product of Labor column for each worker and the Marginal Cost column at each level of labor. (Hint: Marginal cost is the change in total cost divided by the change in the quantity of output. You can calculate it here by dividing the increase in total cost from hiring one more worker by the marginal physical product from hiring one more worker.)

Labor	Quantity of Output	Marginal Physical Product of Labor	Total Cost	Marginal Cost
(Workers)	(Pizzas per day)	(Pizzas per day)	(Dollars per day)	(Dollars per pizza)
0	0		50
1	10		140
2	25		230
3	45		320
4	75		410
5	100		500
6	115		590

True or False: Marginal physical product and marginal cost move in the same direction.

True

False

Answer 1

Answer:

Labor	Quantity of output	Marginal physical product of Labor = Change in Quantity of output	Total Cost(TC) = 50+ (90)L	Marginal Cost= (Change in TC/ Change in Quantity of output)
0	0	-	50	-
1	10	10-0 = 10	140	(140 – 50) / 10 = 9
2	25	25 – 10 = 15	230	(230 – 140) / 15 = 6
3	45	45- 25 = 20	320	(320 – 230) / 20 = 4.5
4	75	75 – 45 = 30	410	(410 – 320) / 30 = 3
5	100	100 – 75 = 25	500	(500 – 410) / 25 = 3.6
6	115	115 – 100 = 15	590	(590 – 500)/ 15 = 6

Marginal physical product and marginal cost move in the same direction.

False.

When Marginal physical product of Labor rises the marginal Cost decreases.