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TC MP LRATC worksheet

TC MP LRATC worksheet - Marginal Product Marginal Cost...

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Marginal Product, Marginal Cost, Costs. 1. Consider the short run information for an individual firm. Labor (L) is the only variable input. The price of labor is $200/week. Fixed costs are $100/week. Complete the rest of the table. Labor L Total Product (Q) (∆TP/∆L) MP (price of labor) Labor x $$ TVC TFC (TFC+TVC) TC ∆TVC/∆Q (output) MC 0 0 ----- $0 $100 $100 -------- 1 20 20 200 100 300 $10 2 55 35 400 100 500 5.71 3 100 45 600 100 700 4.44 4 150 50 800 100 900 4 5 200 50 1000 100 1100 4 6 230 30 1200 100 1300 6.67 7 250 20 1400 100 1500 10 8 263 13 1600 100 1700 15.4 9 270 7 1800 100 1900 28.6 10 275 5 2000 100 2100 40 11 278 3 2200 100 2300 66.67 12 280 2 2400 100 2500 100 a. (10) Complete the table. b. (5) Describe the relationship between the MP and MC. If marginal product is above average product, it pulls the average up. Marginal product and marginal cost are inverse (mirrors of eachother). As marginal product goes up, marginal cost goes down c. (5) Indicate at which output level the law of diminishing returns set in? Highlight this level. Sets in with the 5 th unit of labor. LRAC and SRAC 1 8 2 7
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3 6 4 5 2 4 6 8 10 12 14 16 18 Quantity (1,000’s) 2. Consider the above diagram.
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