Problemset5 - divided by total output first decreases because output is increasing at a greater rate than the increase of variable cost However as

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6) Quantity Labor FC TVC TC AFC AVC ATC MC APL MPL 0 0 450 0 450 -- -- -- -- -- -- 5 1 450 90 540 90 18 108 18 5 5 20 2 450 180 630 22.5 9 31.5 6 10 15 45 3 450 270 720 10 6 16 3.6 15 25 60 4 450 360 810 7.5 6 13.5 6 15 15 70 5 450 450 900 6.42857 6.4286 12.8571 9 14 10 75 6 450 540 990 6 7.2 13.2 18 12.5 5 78 7 450 630 1080 5.76923 8.0769 13.8462 30 11.14 3 a. Marginal cost attains its minimum at output of 45 units and labor usage of 3 workers. b. ATC is at its minimum at output of 70 units and labor usage of 5 workers. c. Law of diminishing returns first occurs at output of 60 units and labor usage of 4 workers. d. Even when output is equal to 0 units, firm still has to pay fixed cost of $450, a sunk cost that does not depend on the level of output that the firm produces. For instance, the fixed cost of $450 may be the lease payment for the factory where the production occurs. e. This is due to the law of diminishing returns. As output increases, AVC (variable cost
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Unformatted text preview: divided by total output) first decreases because output is increasing at a greater rate than the increase of variable cost. However, as more workers are hired in order for output to continue its increase, the increase of variable cost (the cost of hiring more workers) is greater relative to the increase in output (since the workers’ productivity is likely to be restricted by short-term factors, such as the size of the factory). f. Quantity MC TR TC Profit = TR - TC----450-450 5 18 90 540-450 20 6 360 630-270 45 3.6 810 720 90 60 6 1080 810 270 70 9 1260 900 360 75 18 1350 990 360 78 30 1404 1080 324...
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This note was uploaded on 02/17/2009 for the course ECON 101 taught by Professor Burkhauser during the Spring '08 term at Cornell University (Engineering School).

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