Total Cost and Marginal Cost – Complete the following table, where L is units of
ID: 1169147 • Letter: T
Question
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
At what level of labor input do the marginal returns from labor begin to diminish?
What is the average variable cost when Q = 24?
What is the firm’s fixed cost?
What is the wage rate per day?
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
Explanation / Answer
Question 1: When 1 unit of labour was employed, the Marginal Product was 6. At the employment of one more labour unit, the Marginal Product was 9 (15-6). Further at the introduction of the 3rd labour unit, the Marginal Product however declined.
Marginal Return Product = Marginal Product x Marginal Revenue
The question about Marginal Returns from labour cannot be answered since Marginal Revenue is not known.
Question 2: Average Variable Cost when Q = 24 is 30. We arrive at 30 by dividing 120 by 4.
Question 3: The fixed cost is $ 120. SInce at the first unit the variable cost is NIL. The fixed cost of $ 120 does exist, we conclude that $ 120 is the fixed cost.