Homework SourseThe first two columns in the following table give a firms sh
The first two columns in the following table give a firm’s short-run production function when the only variable input is labor, and capital (the fixed input) is held constant at 5 units. The price of capital is $2000 per unit, and the price of labor is $500 per unit.
b. What is the relation between average variable cost and marginal cost? Between average total cost and marginal cost?
c. What is the relation between average product and average variable cost? Between marginal product and marginal cost?
| Unit of | Units of | Average | Marginal | Cost | Average Cost | Marginal | ||||
| labor | Output | Product | Product | Fixed | Variable | Tortal | Fixed | Variable | Total | Cost |
| 0 | 0 | xx | xx | 10,000 | 0 | 10,000 | xx | xx | xx | xx |
| 20 | 4,000 | 200 | 200 | 10,000 | 10,000 | 20,000 | 2.5 | 2.50 | 5.00 | 2.50 |
| 40 | 10,000 | 250 | 300 | 10,000 | 20,000 | 30,000 | 1.00 | 2.00 | 3.00 | 1.67 |
| 60 | 15,000 | 250 | 250 | 10,000 | 30,000 | 40,000 | 0.67 | 2.00 | 2.67 | 2.00 |
| 80 | 19,400 | 242.5 | 220 | 10,000 | 40,000 | 50,000 | 0.52 | 2.06 | 2.58 | 2.27 |
| 100 | 23,000 | 230 | 180 | 10,000 | 50,000 | 60,000 | 0.43 | 2.17 | 2.61 | 2.78 |
Solution
There is no question in sub-part A.
B. Both kept decreasing till 2 and later kept on increasing. However, total cost kept declining
C. Average variable product cost is given by average variable cost. Cost of additonal product is given by marginal cost
