Introduction to Microeconomics

1. Using the table below, answer the following questions.

a. Complete the table, filling in the answers for marginal and average products.

b. Over how many workers is the firm enjoying increasing returns?

c. At what number of workers do diminishing returns set in?

d. Are negative returns shown in the table?

Labour Output Marginal Product Average Product

0 0

1 7

2 15

3 25

4 33

5 40

6 45

1. Mark and Jeff operate a small company that produces souvenir footballs. Their fixed cost is $2,000 per month. They can hire workers for $1,000 per worker per month. Their monthly production function for footballs is as given in the accompanying table.

a. For each quantity of labor, calculate, fixed cost (FC), variable cost (VC), total cost (TC), average variable cost (AVC), average fixed cost (AFC), average total cost (ATC), and marginal cost (MC).

b. On one diagram, illustrate the AVC, ATC,and MCcurves.

c. At what level of output is Mark and Jeff’s average total cost minimized?

Quantity of workers quanity of footballs FC VC TC AVC AFC ATC MC

0 0

1 300

2 800

3 1200

4 1400

5 1500

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