Answers to Study Questions Set 6
Page 169 Question 6
Complete the following table by calculating marginal product and average product from
the data given.
Plot total, marginal, and average product and explain in detail the relationship
between each pair of curves.
Explain why marginal product first rises, then declines, and
ultimately becomes negative.
What bearing does the law of diminishing returns have on
“When marginal product is rising, marginal cost is falling.
when marginal product is diminishing, marginal cost is rising.”
Illustrate and explain graphically.
Marginal product data, top to bottom:
15; 19; 17; 14; 9; 6; 3; -1.
Average product data, top to
15; 17; 17; 16.25; 14.8; 13.33; 11.86; 10.25.
Your diagram should have the same
general characteristics as text Figure 6-2.
MP is the slope—the rate of change—of the TP curve.
When TP is rising at an increasing rate,
MP is positive and rising.
When TP is rising at a diminishing rate, MP is positive but falling.
When TP is falling, MP is negative and falling.
AP rises when MP is above it; AP falls when MP
is below it.
MP first rises because the fixed capital gets used more productively as added workers are
Each added worker contributes more to output than the previous worker because the
firm is better able to use its fixed plant and equipment.
As still more labour is added, the law of
diminishing returns takes hold.
Labour becomes so abundant relative to the fixed capital that
congestion occurs and marginal product falls.
At the extreme, the addition of labour so
overcrowds the plant that the marginal product of still more labour is negative—total output falls.
Illustrated by Figure 6-6.
Because labour is the only variable input and its price (its wage rate) is
constant, MC is found by dividing the wage rate by MP.
When MP is rising, MC is falling; when
MP reaches its maximum, MC is at its minimum; when MP is falling, MC is rising.
Page 169 Question 7
Why can the distinction between fixed and variable costs be made in the short run?
following as fixed or variable costs: advertising expenditures, fuel, interest on company-issued
bonds, shipping charges, payments for raw materials, real estate taxes, executive salaries,
insurance premiums, wage payments, depreciation and obsolescence charges, sales taxes, and