ECON 140: CHAPTER 9

REVIEW QUESTIONS

Tutorial session

Q1: The Sunshine Corporation finds that its costs are $40 when it produces no output.
Its total variable costs (TVC) change with output as shown in the accompanying table.
Use this information to answer the following question.

1- Refer to the information. The total cost of producing 3 units of output is:

A. $65.

B. $105.

C. $145.

D. $185.

2-Refer to the information. The average cost of producing 3 units of output is:

A. $65.

B. $21.67

C. $40.

D. $35.

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3- If marginal cost is:

A. Falling, then average total cost must also be falling.

B. Rising, then average total cost must also be rising.

C. Rising, then average total cost could be either falling or rising.

D. Falling, then average total cost could be either falling or rising.

Question two:
The table below shows the total production of a firm as the quantity of labor employed increases.
The quantities of all other resources employed are constant. Compute the marginal and
average products and enter them in the table.
Marginal Average
Inputs of Total product of product of
labor product labor labor

0 0 — —

1 40 _____ _____

2 100 _____ _____

3 165 _____ _____

4 200 _____ _____

5 225 _____ _____

6 240 _____ _____

7 245 _____ _____

8 240 _____ _____

(a) At which labor the law of diminishing return starts?

(b) Describe the relationship between the total product and marginal product.

(c) Describe the relationship between marginal and average product.

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Question three
Complete the following short-run cost table using the information provided.
Total
product
TFC AFC TVC AVC TC MC

0 $_____ — $_____ — $_____ $_____

1 _____ $_____ _____ $12 _____ _____

2 _____ 12 _____ 10 _____ _____

3 _____ _____ _____ 12 _____ _____

4 _____ _____ _____ 14 _____ _____

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 ANSWERS
Q1: The Sunshine Corporation finds that its costs are $40 when it produces
no output. Its total variable costs (TVC) change with output as shown in the
accompanying table. Use this information to answer the following question.

1- Refer to the information. The total cost of producing 3 units of output is:

A. $65.

B. $105.

C. $145.

D. $185.

2-Refer to the information. The average cost of producing 3 units of output is:

A. $65.

B. $21.67

C. $40.

D. $35.

3- If marginal cost is:

A. Falling, then average total cost must also be falling.

B. Rising, then average total cost must also be rising.

C. Rising, then average total cost could be either falling or rising.

D. Falling, then average total cost could be either falling or rising.

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Question two:
The table below shows the total production of a firm as the quantity of labor employed increases.
The quantities of all other resources employed are constant. Compute the marginal and
average products and enter them in the table.

Total Marginal product of Average product of

product labor labor
Inputs of
labor Q MPL= ΔQ/ΔL APL= Q/L

0 0 — —

1 40 (40-0)/(1-0)=40 40/1

2 100 (100-40)/(2-1)=60 100/2

3 165 165-100=65 165/3

4 200 200-165=35 200/4

5 225 225-200=25 225/5

6 240 240-225=15 240/6

7 245 245-240=5 245/7

8 240 240-245=-5 240/8

(a) At which labor the law of diminishing return starts? [At Labor no. 4]

(b) Describe the relationship between the total product and marginal product.

(c) Describe the relationship between marginal and average product.

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Question three
Complete the following short-run cost table using the information provided.
Total
product
TFC AFC TVC AVC TC MC

0 $_____ — $_____ — $_____ $_____

1 _____ $_____ _____ $12 _____ _____

2 _____ 12 _____ 10 _____ _____

3 _____ _____ _____ 12 _____ _____

4 _____ _____ _____ 14 _____ _____

We know that

AFC= FC/Q FC = AFC X Q

When Q=0 VC =0

TC= FC + VC

AVC= VC/ Q VC= AVC X Q

MC = change in TC / Change in Q

Total
product
TFC AFC TVC AVC TC MC

0 $24 — $0 — $24+0=24 $_____

1 24 $24/1 12X 1 $12 24+12= 36 36-24

2 (12 X2) =24 12 10X2 10 24+20=44 44-36

3 24 24/3 12X3 12 24+36=60 60-44

4 24 24/4 14X 4 14 24+ 56=80 80-60