Economics A Contemporary Introduction 10th Edition Mceachern Solutions Manual

Economics A Contemporary
Introduction 10th Edition McEachern

Solutions Manual
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ary-introduction-10th-edition-mceachern-solutions-manual/
CHAPTER 7
PRODUCTION AND COST IN THE FIRM
INTRODUCTION
This chapter describes key characteristics governing how firms operate in the short run and the long run.
Perhaps the most important concepts in the chapter are the shapes and the logic of the short-run and long-run
cost curves. These cost curves will be utilized throughout the microeconomics section to explain the firm’s
supply behavior. The appendix develops the use of input combinations using isocost lines and isoquants.
CHAPTER OUTLINE
I. Cost and Profit: (Slides 3-4)
We assume that producers try to maximize profit.
• Profit: The difference between total revenue and the opportunity cost of resources.
A. Explicit and Implicit Costs
• Explicit costs: Actual cash payments for resources purchased in resource markets.
• Implicit costs: Opportunity costs of using resources owned by the firm or provided by the
firm’s owners.
B. Alternative Measures of Profit (Slides 5-6)

• Accounting Profit: Total revenue minus explicit costs.
• Economic profit: Total revenue minus all costs, both implicit and explicit.
• Normal profit: The accounting profit earned when all resources used by the firm earn their
opportunity cost.
II. Production in the Short Run (Slide 7)

A. Fixed and Variable Resources
• Variable resources: Can be varied quickly to change the output rate.
• Fixed resources: Resources that cannot easily be altered.
• Short run: At least one resource is fixed; the size or scale of the firm is fixed.
• Long run: No resource is fixed; all resources can vary.
B. The Law of Diminishing Marginal Returns (Slides 8-11)

• Production function: The relationship between the amount of resources employed and
total product or output.
• Marginal product: The change in total product resulting from an additional unit of labor.
1. Increasing Marginal Returns: As marginal product increases, the firm experiences

increasing marginal returns from labor because additional workers can specialize and
make more efficient use of the fixed resources.
2. Diminishing Marginal Returns: As more of a variable resource is added to a given
amount of a fixed resource, the marginal product eventually declines and could become
negative.
C. The Total and Marginal Product Curves:
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78 Chapter 7 Production and Cost in the Firm
When marginal product

• Rises, total product increases at an increasing rate.
• Decreases, total product increases at a decreasing rate.
• Is negative, total product is decreasing.
III. Costs in the Short Run: (Slides 12-16)

Definitions:
• Fixed cost: Costs that are independent of output and must be paid even if no output is produced.
• Variable cost: Cost of variable resources
A. Total Cost and Marginal Cost in the Short Run:
1. Total Cost: The sum of fixed cost and variable cost. TC = FC + VC.
2. Marginal Cost: The change in total cost divided by the change in output. MC = ∆TC
/ ∆q.
• Changes in marginal cost (MC) reflect changes in the marginal productivity
(MP) of the variable resource. When marginal returns are increasing, the
marginal cost of output decreases.
• When marginal returns are diminishing, the marginal cost of output
increases.
3. Total and Marginal Cost Curves: The slope of the total cost curve at each rate of
output equals the marginal cost at that rate of output. Review Exhibit 5 in text.
B. Average Cost in the Short Run (Slide 17)

• Average Variable Cost: Variable cost divided by output or VC/q
• Average Fixed Cost: Fixed cost divided by output or FC/q
• Average Total Cost: Total cost divided by output or TC/q
C. The Relationship Between Marginal Cost and Average Cost: (Slides 18-20) Marginal cost
pulls down average cost where marginal cost is below average cost and pulls up average cost
where marginal cost is above average cost.
D. Summary of Short-Run Cost Curves: The law of diminishing marginal returns determines
The shape of short-run cost curves:
• When the marginal product of labor increases, the marginal cost of output falls.
• When marginal cost is less than average cost, average cost falls.
• When marginal cost is above average cost, average cost rises.
IV. Costs in the Long Run: (Slide 21) Long-run is best thought of as a planning horizon.
A. Economies of Scale (Slide 22)

• Long-run average cost curves are U-shaped because of economies and diseconomies of
scale.
• Forces that reduce a firm’s long run average cost as the scale of operation increases.
B. Diseconomies of Scale:
• Forces that increase a firm’s long run average cost as the scale of operation increases
C. The Long-Run Average Cost Curve: (Slides 23-25) The curve indicating the lowest
average cost of production at each rate of output as the firm size is varied.
• Each short-run average cost curve is tangent to the long-run average cost curve.
Case Study: Scale Economies and Diseconomies at the Movies (Slide 26)
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Chapter 7 Production and Cost in the Firm 79
• Constant Long-Run Average Cost: (Slides 27-28) Long-run average cost neither
increases nor decreases with changes in firm size.
• Minimum Efficient Scale: The lowest rate of output at which a firm takes full advantage
of economies of scale.
D. Economies and Diseconomies of Scale at the Firm Level (Slide 28)
Case Study: Scale Economies and Diseconomies at McDonald’s (Slides 29-30)
Appendix: A Closer Look at Production and Costs (Slides 29-40)

I. The Production Function and Efficiency
• Production function: Identifies the most that can be produced per time period using various
combinations of resources, for a given level of technology.
• Technologically efficient: The production of the maximum possible output given the combination
of resources employed.
II. Isoquants: Curves that show all the technologically efficient combinations of two resources that
produce a certain rate of output.
• Greater rates of output are represented by isoquants farther from the origin.
• Have negative slopes.
• Do not intersect.
• Are usually convex to the origin.
• Have a slope that is the marginal rate of technical substitution (MRTS), which is the rate at which
labor can be substituted for capital without affecting output. MRTS = MPL / MPC.
III. Isocost Lines: Identify all combinations of capital and labor the firm can hire for a given total cost.
• Slope = (TC/r) / (TC/w) = w/r = ratio of the input prices.
• Parallel because each reflects the same relative resource prices.
IV. The Choice of Input Combinations: For a given rate of output, the firm minimizes its total cost by
choosing the lowest isocost line that is tangent to the isoquant.
V. The Expansion Path: Indicates the lowest long-run total cost for each rate of output.
CONCLUSION
Two relationships between resources and output underlie all the curves in this chapter. In the short run, it's in-
creasing and diminishing returns from the variable resource. In the long run, it's economies and diseconomies
of scale.
CHAPTER SUMMARY
Explicit costs are opportunity costs of resources employed by a firm that take the form of cash payments.
Implicit costs are the opportunity costs of using resources owned by the firm. A firm earns a normal profit
when total revenue covers all implicit and explicit costs. Economic profit equals total revenue minus both
explicit and implicit costs.
Resources that can be varied quickly to increase or decrease output are called variable resources. In the short
run, at least one resource is fixed. In the long run, all resources are variable.
A firm may initially experience increased marginal returns as it takes advantage of increased specialization of
the variable resource. But the law of diminishing marginal returns indicates that the firm eventually reaches a
point where additional units of the variable resource yield an ever-smaller marginal product.
The law of diminishing marginal returns from the variable resource is the most important feature of production
in the short run and explains why marginal cost and average cost eventually increase as output expands.
In the long run, all inputs under the firm’s control are variable, so there is no fixed cost. The firm’s long-run
average cost curve, also called its planning curve, is an envelope formed by a series of short-run average total
cost curves. The long run is best thought of as a planning horizon.
A firm’s long-run average cost curve, like its short-run average cost curve, is U-shaped. As output expands,
average cost at first declines because of economies of scale—a larger plant size allows for bigger and more
specialized machinery and a more extensive division of labor. Eventually, average cost stops falling. Average
cost may be constant over some range. If output expands still further, the plant may experience diseconomies
of scale as the cost of coordinating resources grows. Economies and diseconomies of scale can occur at the
plant level and at the firm level.
In the long run, a firm selects the most efficient size for the desired rate of output. Once the firm’s size is
chosen, some resources become fixed, so the firm is back operating in the short run. Thus, the firm plans for
the long run but produces in the short run.
TEACHING POINTS
1. This chapter presents the construction of cost curves for the individual firm. Students who master this
material should have no problem understanding the sections of the text dealing with market structure.
The cost curves discussed in this chapter are inherently quantitative, and those students with weaker math
backgrounds need exercises that force them to derive average cost and marginal cost from the basics. The
online materials and the Study Guide provide additional exercises and also help students learn how to
utilize graphic techniques—something that will be essential in the discussion of competitive equilibrium.
2. The chapter begins with a discussion of the meaning of the total and marginal products of labor, which is
the only variable resource considered in the short run. Exhibit 2 shows the relationship between labor
employed and output generated. Note that both increasing and diminishing returns are discussed. Point
out that marginal product can be negative while total product is still positive. Ask the students to explain
how this can happen.
3. It should not be hard to explain the concept of diminishing marginal returns. It is important to emphasize
that the additional units of the variable resource are not less capable than earlier units. As an example,
you might have students think about how total output at a fast food restaurant will change as additional
workers are added.
4. Exhibit 4 is particularly useful for class discussion. Some students find the numerical examples
particularly illuminating. An interesting way to approach this material is to leave certain parts of the
table blank and ask students to use the filled-in parts to guide them in completing the table. You need
delete only one table entry per line to make this an interesting exercise.
5. Exhibit 5 shows the relationship between the total cost curve and the marginal cost curve. Because
marginal cost is the slope of the total cost curve, it is natural to use the word slope in the classroom.
Another word that might prove illuminating for students is steepness. As the total cost curve becomes
steeper, marginal cost increases.
6. Exhibits 6 and 7 are crucial to understanding cost in the short run and must be covered with great care.
Because the marginal cost curve ultimately drives the variable and total cost curves, understanding why
diminishing marginal productivity leads to increasing marginal costs is absolutely essential. Once this is
understood relating marginal to average results in the characteristic U-shaped average variable and
average total cost curves. A clear way to depict the relationship between marginal and average is to use
the impact on the average class height when a tall or short student joins the class.
7. The long-run average cost curve should be presented as an envelope curve based on selection of the best
scale of production from the many possible scales for each output level on the basis of cost. The shape of
the long-run curve then does not depend on diminishing marginal product but on the existence of
economies and diseconomies of scale.
ANSWERS TO END-OF CHAPTER QUESTIONS AND EXERCISES

Answers to Questions for Review
1. (Explicit and Implicit Costs) Amos McCoy is currently raising corn on his 100-acre farm and earning an
accounting profit of $100 per acre. However, if he raised soybeans, he could earn $200 per acre. Is he
currently earning an economic profit? Why or why not?
Amos McCoy is not currently making an economic profit, despite the fact that he is making an
accounting profit. This is so because the accounting profit calculation does not take into account an
important implicit cost—the opportunity cost of not raising soybeans. Actually, McCoy is experiencing
an economic loss. According to our theory, he should get out of the corn business and begin growing
soybeans. This question highlights the important distinction between accounting profit and economic
profit.
2. (Explicit and Implicit Costs) Determine whether each of the following is an explicit cost or an implicit
cost:
a. Payments for labor purchased in the labor market
b. A firm’s use of a warehouse that it owns and could rent to another firm
c. Rent paid for the use of a warehouse not owned by the firm
d. The wages that owners could earn if they did not work for themselves
a) explicit; b) implicit; c) explicit; d) implicit
3. (Alternative Measures of Profit) Calculate the accounting profit or loss as well as the economic profit or
loss in each of the following situations:
a. A firm with total revenues of $150 million, explicit costs of $90 million, and implicit costs of $40
million
b. A firm with total revenues of $125 million, explicit costs of $100 million, and implicit costs of $30
million
c. A firm with total revenues of $100 million, explicit costs of $90 million, and implicit costs of $20
million
d. A firm with total revenues of $250,000, explicit costs of $275,000, and implicit costs of $50,000
a. Accounting profit = $60 million; economic profit = $20 million

b. Accounting profit = $25 million; economic loss = –$5 million
c. Accounting profit = $10 million; economic loss = –$10 million
d. Accounting loss = –$25,000; economic loss = –$75,000
4. (Alternative Measures of Profit) Why is it reasonable to think of normal profit as a type of cost to the
firm?
Recall that firms produce output using four kinds of resources: natural resources, labor, capital, and
entrepreneurial ability. The owner of the firm supplies some of the resources that the firm employs.
Normal profit is the return to the entrepreneurial ability and other resources supplied by the firm’s
owners. If this profit is not as large as those individuals could earn in their best alternative situation,
they will switch the resources to that alternative. So, we can think of normal profit as being the minimum
return, or cost, that is necessary to keep the firm running.
5. (Short Run Versus Long Run) What distinguishes a firm’s short-run period from its long-run period?
In the short run, at least one of the firm’s resources is fixed, usually the size of the firm. In the long run,
all the resources are variable. That is, the quantities of all resources can change to alter the firm’s level
of output, including the size of the firm.
6. (Law of Diminishing Marginal Returns) As a farmer, you must decide how many times during the year to
plant a new crop. Also, you must decide how far apart to space the plants. Will diminishing returns be a
factor in your decision making? If so, how will it affect your decisions?
The law of diminishing marginal returns says that, the more of a variable resource that is combined with
a given amount of a fixed resource (land in this case), marginal product (crop) will eventually decline.
Diminishing returns will result from growing crops too close together or planting too many times in one
year. Placing crops too close together deprives them of sufficient nutrients to grow. More plants grow,
but each produces smaller and fewer fruits or vegetables. If crops are not rotated and sufficient time is
not allowed for the soil to regain its nutrients, subsequent harvests will be smaller. For this reason,
farmers often allow a field to go fallow, planting it with grass or nitrogen-rich plants.
7. (Marginal Cost) What is the difference between fixed cost and variable cost? Does each type of cost
affect short-run marginal cost? If yes, explain how each affects marginal cost. If no, explain why each
does or does not affect marginal cost.
Fixed cost is a short-run phenomenon. It does not vary as output varies, and the firm must pay fixed costs
in the short run even if output is zero. Variable cost is associated with the firm’s variable resources. As
output varies, usage of the variable resources varies. Thus, variable cost rises as output rises and falls as
output falls. If output is zero, variable cost is zero. Because marginal cost measures the change in total
cost as output changes by one unit, it is affected by variable cost only. By definition, fixed cost does not
change in the short run and thus has no impact on short-run marginal cost.
8. (Marginal Cost) Explain why the marginal cost of production must increase if the marginal product of
the variable resource is decreasing.
A decrease in the marginal productivity of a variable resource means that the additional output from
each additional unit of the variable resource is getting smaller. Because each additional unit of the
variable resource adds the same amount to the total cost of production (i.e., this added cost equals the
unit price of the variable resource), the marginal cost of each additional unit of output must be
increasing.
9. (Costs in the Short Run) What effect would each of the following have on a firm’s short-run marginal
cost curve and its total fixed cost curve?
a. An increase in the wage rate
b. A decrease in property taxes
c. A rise in the purchase price of new capital
d. A rise in energy prices
a. This shifts the marginal cost curve upward and to the left. It would have no effect on fixed cost.
b. This shifts the fixed cost curve downward but has no effect on marginal cost.
c. This shifts the fixed cost curve upward but has no effect on marginal cost.
d. This shifts the marginal cost curve upward. It would have no effect on fixed cost.
10. (Costs in the Short Run) Identify each of the curves in the following graph:
C
B A
A = average variable cost; B = average total cost; C = marginal cost.
11. (Marginal Cost and Average Cost) Explain why the marginal cost curve must intersect the average total
cost curve and the average variable cost curve at their minimum points. Why do the average total cost
and average variable cost curves get closer to one another as output increases?
If average cost is falling, marginal cost must lie below average cost. If average cost is rising, marginal
cost must lie above average cost. An average can increase only if the marginal amount is greater than
the previous average. Average total cost (ATC) and average variable cost (AVC) differ only by average
fixed cost (AFC), which is the fixed cost divided by quantity. As quantity increases, fixed cost divided by
quantity must fall, and ATC and AVC approach each other.
12. (Marginal Cost and Average Cost) In Exhibit 7 in this chapter, the output level where average total cost
is at a minimum is greater than the output level where average variable cost is at a minimum. Why?
As output increases, the average fixed cost (AFC) must fall. Therefore average total cost (ATC) is pulled
down by the AFC falling, with the increase in Q, because ATC = AVC + AFC. After AVC begins to
increase, ATC will still fall to the extent that AFC falls faster than AVC rises. Eventually AVC rises
faster than AFC falls, leading to an increase in ATC, but at a quantity larger than that associated with
minimum AVC.
13. (Long-Run Average Cost Curve) What types of changes could shift the long-run average cost curve?
How would these changes also affect the short-run average total cost curve?
The long-run average cost curve is determined by the technology of production and by resource prices.
For example, if there is a change in technology that increases the degree of returns to scale to the firm,
the long-run average cost curve shifts downward. Similarly, if the entry of firms into an industry causes
resource prices to rise, the long-run average cost curve shifts upward. In the first case, some of the
short-run average total cost curves shift downward (because of increasing returns to scale). In the
second case, all short-run average total cost curves shift upward.
14. (Long-Run Average Cost Curve) Explain the shape of the long-run average cost curve. What does
“minimum efficient scale” mean?
The shape of the long-run average cost curve is related to economies and diseconomies of scale.
Economies of scale are factors that cause long-run average cost to fall as output expands. Diseconomies
of scale are factors that cause long-run average cost to rise as output expands. The minimum efficient
scale is the lowest rate of output at which long-run average cost is at a minimum. Constant long-run
average cost may occur at some plant sizes above the minimum efficient scale. Eventually, diseconomies
of scale become powerful enough to cause rising long-run average cost.
15. (CaseStudy: Scale Economies and Diseconomies at the Movies) The case study states that the concession
stand accounts for well over half the profits at most theaters. Given this, what are the benefits of the
staggered movie times allowed by multiple screens? What is the benefit to a multiscreen theater of
locating at a shopping mall?
A benefit of staggered movie times in a multiple-screen operation is that the concession stand can
operate for longer periods of time than it could when only one feature film was shown. Locating at a
shopping mall provides easy access and parking facilities that multiscreen operations located on their
own can’t necessarily offer.
16. (Scale Economies and Diseconomies) In analyzing scale economies and diseconomies, what's the
difference between the plant level and the firm level?
The plant level is a single location or business, but the firm level is a group of plants or businesses. For
example, one movie theatre versus a chain of movie theatres illustrates the plant versus firm levels.
Large firms do whatever possible to reduce diseconomies of scale.
Answers to Problems and Exercises

17. (Production in the Short Run) Complete the following table. At what point does diminishing marginal
returns set in?
Units of the
Variable Resource Total Product Marginal Product
0 0 —
1 10 —
2 22 —
3 — 9
4 — 4
5 34 —
Units of the
Variable Resource Total Product Marginal Product
0 0 —
1 10 10
2 22 12
3 31 9
4 35 4
5 34 –1
The law of diminishing returns states that, as units of a variable resource are added to fixed
quantities of other resources, the resulting increases in total output eventually become smaller and
smaller. Diminishing marginal returns occur after the second unit of the variable resource is
employed.
18. (Total Cost and Marginal Cost) Complete the following table, assuming that each unit of labor costs $75
per day.
Quantity
of Labor Output Fixed Variable Total Marginal
per Day per Day Cost Cost Cost Cost
0 $___ $300 $____ $____ $___
1 5 ___ 75 ___ 15
2 11 ___ 150 450 12.50
3 15 ___ ___ 525 ___
4 18 ___ 300 600 25
5 20 ___ ___ ___ 37.50
a. Graph the fixed cost, variable cost, and total cost curves for these data.
b. What is the marginal product of the third unit of labor?
c. What is average total cost when output is 18 units per day?
Quantity
of Labor Output Fixed Variable Total Marginal
per Day per Day Cost Cost Cost Cost
0 0 $300 $0 $300 —
1 5 300 75 375 15
2 11 300 150 450 12.50
3 15 300 225 525 18.75
4 18 300 300 600 25
5 20 300 375 675 37.50
a.
b. The marginal product is 4.

c. The average total cost is $33.33.
19. (Total Cost and Marginal Cost) Complete the following table, where L is units of labor, Q is the rate of
output, and MP is the marginal product of labor.
L Q MP VC TC MC ATC
0 0 ____ $ 0 $120 $__ $__
1 6 ____ 30 150 ___ ___
2 15 ____ 60 ___ ___ ___
3 21 ____ 90 ___ ___ ___
4 24 ____ 120 ___ ___ ___
5 26 ____ 150 ___ ___ ___
a. At what level of labor input do the marginal returns to labor begin to diminish?
b. What is the average variable cost when Q = 24?
c. What is this firm’s fixed cost?
d. What is the wage rate per day?
This question demonstrates the relationships between marginal product and marginal costs as well as
between marginal and average total costs. The student should supply the missing numbers for MP, TC,
MC, and ATC as shown in italics in the following table:
L Q MP VC TC MC ATC
0 0 — $ 0 $120 — —
1 6 6 30 150 $5.00 $25.00
2 15 9 60 180 3.33 12.00
3 21 6 90 210 5.00 12.00
4 24 3 120 240 10.00 10.00
5 26 2 150 270 15.00 10.38
a. Diminishing MP occurs with the third unit of labor.

b. When output is 24, total variable cost is $120. Thus, average variable cost is $5.00.
c. Because total cost is $120 when output is zero, fixed cost must be $120.
d. Each unit of labor increases VC by $30, and therefore the wage rate is $30.
20. (Relationship Between Marginal Cost and Average Cost) Assume that labor and capital are the only
inputs used by a firm. Capital is fixed at 5 units, which cost $100 each per day. Workers can be hired for
$200 each per day. Complete the following table to show average variable cost (AVC), average total cost
(ATC), and marginal cost (MC).
Quantity of
Labor Total Output AVC ATC MC
0 0 $___ $___ $___
1 100 ____ ____ ____
2 250 ____ ____ ____
3 350 ____ ____ ____
4 400 ____ ____ ____
5 425 ____ ____ ____
Quantity of
Labor Total Output AVC (VC/Q) ATC(TC/Q) MC(∆TC/∆Q)
0 0 — — —
1 100 $2.00 $7.00 $2.00
2 250 1.60 3.60 1.33
3 350 1.70 3.14 2.00
4 400 2.00 3.25 4.00
5 425 1.18 3.53 8.00
Students must calculate variable cost, which is $200 per worker, and fixed cost, which is given as 5
units at a cost of $100 each.
21. (Long-Run Costs) Suppose the firm has only three possible scales of production as shown below:
a. Which scale of production is most efficient when Q = 65?

b. Which scale of production is most efficient when Q = 75?
c. Trace out the long-run average cost curve on the diagram.
a. ATC2
b. ATC2
c. The long-run average cost curve (the thicker curve) shows the lowest cost for each output level (i.e.,
it coincides with ATC1 up to 40 units, with ATC2 from 40 to 120 units, and with ATC3 for output
above 120 units).
Answers to Appendix Questions

1. (Choice of Input Combination) Suppose that a firm’s cost per unit of labor is $100 per day and its cost
per unit of capital is $400 per day.
a. Draw the isocost line for a total cost per day of $2,000. Label the axes.
b. If this firm is producing efficiently, what is the marginal rate of technical substitution between labor
and capital?
c. Demonstrate your answer to part (b) using isocost lines and isoquant curves
a.
b. The MRTS is the slope of an isoquant. In equilibrium, it equals the slope of the isocost line, which in
this example is –1/4.
c.
In this diagram, all other points on isoquant Q involves a higher isocost. Isoquant Q is tangent to the
cost line at point e. Thus, its slope matches the slope of the isocost line. That is, the marginal rate of
technical substitution is –1/4, and this is the maximum output possible at a cost of $2,000.
2. (The Expansion Path) How are the expansion path and the long-run average cost curve related?
The expansion path indicates the lowest long-run total cost for each level of output. The long-run
average cost curve indicates the lowest long-run average cost for each level of output. Thus, both
devices indicate how the firm’s costs vary with long-run changes in plant size, given resource prices
and the level of technology.

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Economics A Contemporary

Introduction 10th Edition McEachern

B. Alternative Measures of Profit (Slides 5-6)

II. Production in the Short Run (Slide 7)

B. The Law of Diminishing Marginal Returns (Slides 8-11)

1. Increasing Marginal Returns: As marginal product increases, the firm experiences

C. The Total and Marginal Product Curves:

When marginal product

III. Costs in the Short Run: (Slides 12-16)

B. Average Cost in the Short Run (Slide 17)

A. Economies of Scale (Slide 22)

D. Economies and Diseconomies of Scale at the Firm Level (Slide 28)

Case Study: Scale Economies and Diseconomies at McDonald’s (Slides 29-30)

Appendix: A Closer Look at Production and Costs (Slides 29-40)

ANSWERS TO END-OF CHAPTER QUESTIONS AND EXERCISES

a) explicit; b) implicit; c) explicit; d) implicit

a. Accounting profit = $60 million; economic profit = $20 million

A = average variable cost; B = average total cost; C = marginal cost.

Answers to Problems and Exercises

b. The marginal product is 4.

a. Diminishing MP occurs with the third unit of labor.

a. Which scale of production is most efficient when Q = 65?

Answers to Appendix Questions

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