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Shortrun Cost Formulas/ Marginal Product And Marginal Cost

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2. Short-run cost formulas
Douglas Fur is a small manufacturer of fake-fur boots in Houston. The following table shows the company’s total cost of production at various
production quantities.
Fill in the remaining cells of the table.
Total
Total
Product
Marginal
Cost
Cost
Total Fixed Total Variable
Cost
Cost
Average
Variable Cost
Average Total
Cost
(Pairs)
(Dollars) (Dollars)
(Dollars)
(Dollars)
(Dollars per
pair
Dollars per
pair
0
60
155
2
220
w
255
4
300
5
350
6
450
On the following graph, plot Douglas F
ost curve (ATC ATC) using the green points (triangle symbol). Next, plot its average variable
cost curve (AVCAVC) using the
st curve (MCMC) using the orange points (square
symbol). (Hint: For ATC ATC and AVCAVC,
e total cost of producing one pair of boots is $155,
so you should start your average total cost
1, 155). For ma
tween the integers: For
example, the marginal cost of increasing
your marginal cost curve by placing an
orange square at (0.5, 95).)
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
200
175
COST PER UNIT (Dollars per pair)
QUANTITY OF OUTPUT (Pairs of boots)
3. The relationship between marginal product and marginal cost
Frances’s Big Burger is a small restaurant
lis hamburgers. For Frances, grills are a fixed input and workers are variable inputs. Assume that
labor is Frances’s only variable cost. Frances has a fixed cost of $80 per day and pays each of her workers $120 per day.
Frances’s total output schedule and total cost at each level of labor are presented in the following table.
Fill in the blanks to complete the Marginal Product column for each worker and the Marginal Cost column at each level of labor. (Hint: Marginal cost is
the change in total cost divided by the change in the quantity of output. You can calculate it here by dividing the increase in total cost from hiring one
more worker by the marginal product from hiring one more worker.)
Labor Input
Total Output
Marginal Product Total Cost
Marginal Cost
( Number of
Burgers per
( Burgers per
(Dollars per
(Dollars per
Workers)
day)
day)
day)
burger)
$80
40
$200
2
100
$320
140
$440
160
$560
175
$680
When hiring the first and second workers, Frances’s Big Burger faces
marginal returns to labor.
Over the range of workers for which the marginal product is increasing, Frances’s Big Burger faces
– marginal cost.Economics