American Economy

Economics 100

Practice Problem #1

1.    Fill in the blanks on the following table.

Output refers to the amount produced per day.  Each worker is paid $100 per day in wage and benefits and the firm pays $50 per day in rent of building and equipment, and interests on loans.  For simplicity assume that the cost of raw materials is zero.

Put answers in boxes provided.  Please omit $ from your answers.  Click on the "Submit" button on the bottom of each column to check your answers.  Feedback will be provided in the text box below the table.  Round to two decimal places where appropriate.

# of Workers Output Mg Product of Labor Fixed Costs Variable Costs Total Costs Marginal Costs Avg Variable Costs Avg Total Costs
0 0
1 50
2 60
3 160
4 20
5 190
6 0

 

2.    Answer the following questions.

a.    The law of diminishing returns begins taking place with worker

 b.    Margin Costs first and then . This pattern occurs because marginal returns first and then     *Please use lower case when entering answers.

3.    Graph the Marginal, Average Variable, and Average Total Costs.

a.    What relationship do you notice exists between MgC and ATC?

4.   Fill in the blanks in the following table.

 Suppose that either better training of workers or better technology leads to higher marginal productivity of labor.  Complete the following table with the wage and rental costs the same as above. 

Put answers in boxes provided.  Please omit $ from your answers.  Click on the "Submit" button on the bottom of each column to check your answers.  Feedback will be provided in the text box below the table.  Round to two decimal places where appropriate.                                           

# of Workers Output Mg Product of Labor Fixed Costs Variable Costs Total Costs Marginal Costs Avg Variable Costs Avg Total Costs
0 0
1 60
2 70
3 190
4 30
5 240
6 10

 

5. On the same graph as before (#3), draw the new Marginal Cost and the new Average Total Cost.  What happens to the Cost curves as a result of Productivity Increases?
 

 

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