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