Student Name: Martha Kate Morrison

Analyzing Production and Costs Assignment

Suppose a company is producing its output with variable and fixed inputs in the short run. Its
only variable resource is labor and each laborer is paid $300 per day. The cost for its fixed
inputs is $500. Using the notes you took while reading the module and viewing its videos,
complete the chart below. Then answer the questions that follow with analysis.

Labo Total Average Marginal Total Total Tota Average Average Average Marginal
r Output Physical Physical Variable Fixed l Variable Fixed Total Cost
Product Product Cost Cost Cost Cost Cost Cost
L Q APP MPP TVC TFC TC AVC AFC ATC MC
0 0 - - 0 500 500 - - - -
1 15 15 15 300 500 800 20 33.3 53.3 20
2 35 17.5 20 600 500 1100 17.14 14.28 31.42 15
3 50 16.67 15 900 500 1400 18 10 28 15
4 60 15 10 1200 500 1700 20 8.3 28.3 30
5 65 13 5 1500 500 2000 23.07 7.69 30.76 60
Show analysis to earn the points.
After completing the chart, answer the questions below:
1. Why does marginal output eventually begin to decline in the production function
above?

Marginal output begins to decline because of less efficient production process. As more
and more variable factors are increased with no change in the fixed factor, the
productivity starts declining due to which the marginal output declines

2. How does marginal physical product impact total product and average product?

When margnial product rises rises, total product increases at an increasing rate. When
marginal product is greater than average product, ap rises

3. What observation can you make in regard to how total cost and total variable cost are
related?

The total variable cost of a company's production is equivalent to the total of how much
it costs to produce one single unit of product.

What is the difference between these two costs?

The difference between total cost and total variable cost is total fixed cost. The
difference will be constant since total fixed cost is constant.
 What does that dollar amount represent?
The dollar amount represents the one that is staying constant.
4. The module showed that the AVC curve should take on a u-shape. Do your figures
above reflect this?
Yes
How is the change in productivity responsible for this?
AVC curve is u shaped which means that average variable cost first falls and then starts
to rise. It is because, at first there are increasing returns (decreasing costs) and then
diminishing returns (increasing costs). Hence, the AVC curve is u-shaped

5. The module showed that the AFC curve should decrease as production expands. Do
your figures above reflect this?
Yes
Why is this true?
Afc curve decreases continuously because the fixed cost is constant and when output
increases, the fixed cost gets divided between the output. Due to this, when output
increase, average fixed cost falls.

6. Marginal cost should ___decrease__________ during the period of increasing marginal

returns and ___increase_____________ during the period of diminishing marginal
returns.