Question

Use the following information on a hypothetical short-run production function to answer parts (a) and (b) below.

Units of Labor/Day            5         6         7          8           9

Units of Output/Day          120     140     155      165      168

The price of labor is $20 per day (per unit). Ten units of capital are used each day, regardless of output level. The price of capital is $50 per unit.

a. Calculate the marginal and average product of each unit of labor input. Next, calculate total, average total, average variable, and marginal costs. You can create a table for your answers. Please note that your table should have 8 columns as follows: Labor   Output    MP      AP      TC     ATC    AVC    MC

b. Can you tell where diminishing marginal returns sets in?

Answer 1

Solution:

Given that