Chapter 4 Application Worksheet - Ms. Utterback



Name ___________________________________________________________________ Date ______________

Costs of Production Total Pts: ____/18

Scenario: Complete the following table and plot the points (columns 1&2) on the graph

|Number of Workers |Total Product |Marginal Product of |

| | |Labor |

|0 |0 | |

|1 |14 | |

|2 |42 | |

|3 |75 | |

|4 |112 | |

|5 |150 | |

|6 |180 | |

|7 |203 | |

|8 |216 | |

|9 |207 | |

|10 |190 | |

a. At what number of laborers does the firm experience diminishing marginal returns? ________________

b. At what number of laborers does the firm experience negative marginal returns? ________________

Section 2 – Costs of Production (1 pt each)

1. Describe the relationship between labor and output ____________________________________________________________________________________

2. Use Figure 5.6 (pg. 109), to answer the following questions:

a) What is the marginal product of labor from one laborer to two?_______________

b) What is the marginal product of labor from two laborers to three? ________________

c) At what number of laborers does the marginal product of labor start to decline? _________________

d) At what number of laborers does the firm experience negative marginal product of labor? ___________

3. Why does the marginal product of labor increase for the first three workers? ______________________________________________________________________________________________________________________________________________________________________________________

4. If specialization increases output per worker the firm benefits from ____________________________________

5. Why does the marginal product of labor start to drop after the fourth worker is hired? __________________________________________________________________________

6. If more workers increases total output, but at a decreasing rate, then the firm has experienced an end in the benefits of specialization, or a concept known as ___________________________________________________

7. Describe what happens to workers when a firm experiences negative marginal returns ______________________________________________________________________________________________________________________________________________________________________________________

8. Provide examples of the following costs that a firm can incur based on the picture on page 110.

a) Fixed Costs________________________________________________________________________

b) Variable Costs_________________________________________________________________________

9. Use Figure 5.9 (pg. 111) to answer the following questions:

a) The fixed cost is _____________ for the production of beanbags.

b) If the firm produces one beanbag they will earn a profit of _______________, if they produce 10 beanbags per hour they will earn a profit of ______________, if they produce 12 beanbags an hour they will earn a profit of _______________.

c) At___________ number of beanbags an hour the firm’s Marginal Cost is equal to their Marginal Revenue and their profit is _____________

10. Read the scenario below to fill in the chart below. (5 pts)

Coretta leases a workshop, in which she weaves rugs from marsh grass she gathers (for free) from a nearby riverside. She finds that if she works alone for a day, she can weave two rugs. If she hires one additional worker, together they can weave 5 rugs in a day, each specializing in some of the tasks. Adding a third worker also allows for more specialization, bringing production up to 8 rugs. Adding a fourth worker adds only 2 rugs to production, because there are no more gains from specialization to be had. Hiring a fifth worker adds only one additional rug to daily production, because now the workshop space is getting crowded.

a. What is the output in this example? What is the fixed input? What is the variable input?

b. Complete columns (1) to (3) of this table, showing how number of workers is related to the total and marginal number of rugs produced:

| (1) |(2) |(3) |(4) |(5) |(6) |(7) |(8) |

|Quantity of Labor |Quantity of Output |Marginal Return to |Fixed Cost ($) |Variable Cost |Total Cost |Cost of an |Marginal Cost of |

|(Number of |(Number of Rugs) |an Additional | |($) |($) |Additional |Production ($ per |

|Worker-Days) | |Worker-Day (Number | | | |Worker-Day ($) |Rug) |

| | |of Rugs) | | | | | |

|0 | |-- | | | |-- |-- |

|1 | | | | | | | |

|2 | | | | | | | |

|3 | | | | | | | |

|4 | | | | | | | |

|5 | | | | | | | |

c. Suppose that rent for the workshop space costs Coretta $50 per day (whether she produces anything or not). Her cost for labor (including the opportunity cost of “hiring” herself!) is $80 per worker per day. Complete columns (4) through (6) in the table above, showing her fixed, variable, and total costs of producing various numbers of rugs.

-----------------------

240

210

180

150

120

90

60

30

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download