1 Petes Pie Shop is a perfectly competitive firm If the tota

1. Pete’s Pie Shop is a perfectly competitive firm. If the total output of pies in Pete’s Pie Shop increases
from 20 per hour to 30 per hour as he hires the second worker, then
A. the average product of the second worker is 10 pies.
B. the marginal product of the second worker is 10 pies.
C. the total product of the second worker is 10 pies.
D. the marginal product of the second worker is 20 pies.
E. the marginal product of the second worker is 30 pies.

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2. Every time Pete makes another pie in his shop, he uses $1.20 worth of pastry. For Pete, the cost of
pastry is a component of which of the following?
I: Total Variable Costs
II: Total Fixed Costs
III: Marginal Cost
IV: Total Costs

A. I and IV only
B. II and III only
C. II and IV only
D. III and IV only
E. I, III and IV only

Solution

1.

Marginal Product is the increase in total product due to a unit increase in input.

Here the input is worker (Labor), so with increase in one unit of worker the increase in total product is 30 pies - 20 pies = 10 pies.

Marginal product of second worker is 10 pies. So the answer is B.

2.

Total Cost describes the total economic cost of production and is made up of variable costs, which vary according to the quantity of a good produced and include inputs such as labor and raw materials, plus fixed costs,which are independent of the quantity of a good produced and include inputs (capital) that cannot be varied in the short term, such as buildings and machinery.

This cost is increase in Total Cost due to increase in unit of production and thus this is Marginal cost. Marginal Cost is included in total variable cost as well as in total cost. So, the answer is E.