6 The relationship between marginal product and marginal cos

6. The relationship between marginal product and marginal cost Edison\'s Big Burger is a small restaurant that sells hamburgers. For Edison, grills are a fixed input and workers are variable inputs. Assume that labor is Edison\'s only variable cost. Edison has a fixed cost of $50 per day and pays each of his workers $50 per day. Edison\'s total product schedule and total cost at each level of labor are presented in the following table. Fill in the blanks to complete the Marginal Physical Product of Labor column for each worker and the Marginal Cost column at each level of labor. (Hint: Marginal cost is the change in total cost divided by the change in the quantity of output. You can calculate it here by dividing the increase in total cost from hiring one more worker by the marginal physical product from hiring one more worker.) Total Cost Marginal Cost Quantity of Output Burgers per day) (Burgers per day) Marginal Physical Product of Labor Quantity of Labor (Workers) Dollers per day) (Dollars per burger) 25 75 100 110 115 $50 $100 $150 200 $250 $300 marginal returns to labor When hiring the first and second workers, Edison\'s Big Burger faces marginal cost. Over the range of workers for which the marginal product of labor is decreasing, Edison\'s Big Burger faces

Solution

MPL=change in output/change in quantity of labour

MC=change in TC/Change in quantity of labour.

For the first two workers the MPL is rising.So Edition faces increasing marginal returns to labour.Answer-increasing.

Marginal cost is constant over the decreasing range of marginal product.Answer-constant.

Quantity of labour	Quantity of output	MPL	TC	MC
0	0	-	50	-
1	25	25	100	50
2	75	50	150	50
3	100	25	200	50
4	110	10	250	50
5	115	5	300	50