ECON 2N Activity April 08, 2023

Zackeeyah Shane B. Ferolino BSBA- FM1

1. A firm can manufacture a product according to the production function 

a. Calculate the average product of labor, APL, when the level of capital is fixed at 16
units and the firm uses 16 units of labor. How does the average product of labor change
when the firm uses 81 units of labor? 
b. Find an expression for the marginal product of labor, MPL, when the amount of
capital is fixed at 16 units. Then, illustrate that the marginal product of labor depends on
the amount of labor hired by calculating the marginal product of labor for 16 and 81
units of labor. 
c. Suppose capital is fixed at 16 units. If the firm can sell its output at a price of $100 per
unit and can hire labor at $25 per unit, how many units of labor should the firm hire in
order to maximize profits?
3 1
a. Production Function: Q=F ( K , L )=K 4 L 4
When K= 16 and L=16 When K=16 and L=81
3 1 3 1
4 4
Q=16 16 Q=16 81 4
4

¿ 8(2) ¿ 8(3)
Q=16 Q=24

Q Q
AP L = AP L =
L L
16 24
¿ ¿
16 81
AP L =1 AP L =0.3

Therefore, if the capital is fixed and the firm uses 81 units of labor, it decreases
the average product of labor.

b. MP L =bK a Lb−1 a= ¾ b= ¼ K= 16
3 1 2
1 −1 MP L =
MP L = (16) 4 L 4 3
4 L4

If L= 16 If L= 81

2 2
MP L = 3
MP L = 3
L 4
L4

2 2
¿ 3
¿ 3
16 4
81 4

MP L =¿0.25 MP L =¿0.07

Therefore, if the capital is fixed and the number of labor increases, the marginal

product of labor decreases.

 c. Cost of Labor=MP L × TC

200
25= 3
L4

L=16

Therefore, the firm needs to hire 16 units of labor to maximize its profits.

2. An economist estimated that the cost function of a single-product firm is

C ( Q ) =50+25 Q+ 30Q2 +5 Q3

Based on this information, determine:

a. The fixed cost of producing 10 units of output.
FC =50
The fixed cost is 50 which does not depend on the units of output.

b. The variable cost of producing 10 units of output.

2 3
VC =25 Q+ 30Q +5 Q
2 3
¿ 25(10)+30(10) +5(10)
VC =¿8, 250
Therefore, the total variable cost is $8,250.

c. The total cost of producing 10 units of output.

TC =FC +VC
¿ 50+8 250
TC =$ 8 ,300
Therefore, the total cost of producing 10 units of output is $ 8, 300.

d. The average fixed cost of producing 10 units of output.

FC
AFC=
Q
50
¿
10
AFC=5
Therefore, the average fixed cost of producing 10 units of outputs is $5.

e. The average variable cost of producing 10 units of output.

VC
AV C=
Q
8 25 0
¿
10
AV C=825
Therefore, the average variable cost of producing 10 units of output is $825.
f. The average total cost of producing 10 units of output.
TC
AT C=
Q
8 300
¿
10
AT C=830
Therefore, the average total cost of producing 10 units of output is $830.

g. The marginal cost when Q = 10.

∂ TC
MC=
∂Q

2
¿ 25+ ( 30 ) ( 2 ) Q+ (5 )( 3 ) Q
2
MC=25+ 60Q+15 Q

MC=25+ 60(10)+ 15(10)2

MC=¿ $2, 125
Therefore, the marginal cost when Q = 10 is $2, 125.