Think-Pair-Share

The Costs of Production

 Problem 1
• Nimbus, Inc., makes brooms and then sells them door-to-door.
Here is the relationship between the number of workers and
Nimbus’s output during a given day.
0 200
-

2012° 300710° IS 5 Foo

3013° 4001100 8 3.331%
40740 goo
] '°°
5.56 2.54%
30 600 5 3.33

20 700 5 5

10 800 5.33 10
s god 5.8 20
marginal product
=E%¥¥
Problem 1
• A. Fill in the column of marginal products. What pattern do you
see? How might you explain it?

0
• B. A worker costs $100 a day, and the firm has fixed costs of $200.
Use this information to fill in the column for total cost.
-

• C. Fill in the column for average total cost. What pattern do you
-

see?
 Problem 1
• D. Now fill in the column for marginal cost. What pattern do you
see?
• E. Compare the column for marginal product with the column for
marginal cost. Explain the relationship.
• F. Compare the column for average total cost with the column for
marginal cost. Explain the relationship.
A. At first the marginal product increase continuely until 3 workers Thus after
.
3 unit of workers
,

marginal product had decreased .

B. a workers costs 100$ per day

fixed cost is 200$ per day
Thus, told is 200-1700

C. Average total cost =

_ota
output
c-X .
3% =
15 i. Atl = 15 #

i. According to the column above , it found that average total cost at first was decreased but after 5 unit of

workers it increasing .
D. Due to diminishing marginal product so it make marginal cost U-shaped .
However
,
it rising
steeper .

f. If marginal product is rising marginal cost

,
is falling and vice versa .

F. There are two cases :

① when marginal cost is less than the AVO

,
the AVO is trolling .
The cost d- the last unit

produced pulls the average down .

③ If the marginal cost bigger than average total cost ,

so the average total cost is rising .

the cost of last unit produced push the average up .

 Problem 2
A.Calculate average variable cost, average total cost, and marginal
cost for each quantity.
B.B. Graph all three curves. What is the relationship between the
marginal-cost curve and the average-total-cost curve? Between the
-
' -
i -
-

marginal-cost curve and the average-variable-cost curve?

A.
Q vaviblecost Total cost AVC Afb Marginal cost

0 0 30 -
- -

1
10 40 10 40 10

2 25 55 12-5 27.9 15

3 45 75 IT 25 20

70 too 25
9 17.5 2s
5 '
00 120 20 24 30

1/35 / 122.5/27.5 I Y
[

6 165 3s
B.

costs
Marginal cost
40

.•.•.#
•
•

" """
""" °"
"
go

"" " "" mean

i.
.

20

70

0
Quantity
 Problem 3

• Consider the following table of long-run total costs for three

different firms.
• A. Describe each of these firms experience economies of scale or
diseconomies of scale.
A. Firm A : economic

FIUMB : disco no mic

Firm 0 is economies d- scale from a -3 unit and diseconomies of scale for levels d- output
Also it could
beyond 3 units
say that if both economies and dis economies
.

,
.