Short‐Run Production Decisions Worksheet Populate the table below with respect to important key production variables Daily Labor Use (L) 10 16 20 22 26 32 40 50 62 76 Marginal Physical Product (MPP), Δ /Δ
Daily Output Level (Q) 1.0 3.0 4.8 6.5 8.1 9.6 10.8 11.6 12.0 11.7 Average Physical Product (APP), / Questions: 1. What happens to the MPP curve when MPP>APP? What about when MPP<APP? 2. At what point does MPP intersect APP? 3. At what point does MPP become negative? 4. Plot MPP and APP against L. 1 Populate the table below with respect to important key cost variables. Note that the daily wage rate is equal to $5 per labor unit. For example, the cost associated with 10 labor units is equal to $50 (as indicated in the table below. Begin by filling in TVC, and then fill in the remaining columns. Total Output (Q) 1.0 3.0 4.8 6.5 8.1 9.6 10.8 11.6 12.0 11.7 Total Fixed Costs (TFC) 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Average Fixed Costs (AFC), = TFC/Q Total Variable Cost (TVC) 50 Average Variable Cost (AVC), = TVC/Q Label each curve in the figure below 2 Average Total Cost Marginal Total Cost (TC), Cost (MC), (ATC), =TFC + TVC ΔTC/ΔQ =TC / Q Populate the table below with respect to important variables related to profit maximization. Assume that the market price is $45 per unit and this producer is a price‐taker (MR=P) Total Output (Q) 1.0 3.0 4.8 6.5 8.1 9.6 10.8 11.6 12.0 11.7 Total Revenue, = P*Q 45 135 Total Cost (TC) Economic Profit, = TR ‐ TC Marginal MC (MC) Marginal Revenue (MR), Δ /Δ Questions: 1. What is the price‐maximizing output? 2. Where do MC and MR intersect? Is this related to the profit‐maximizing output? 3 Label each curve indicated in the figure below. 4 Populate the following table to determine the profit‐maximizing level of labor use Total Output (Q) 1.0 3.0 4.8 6.5 8.1 9.6 10.8 11.6 12.0 11.7 Use of Labor (L) 10 16 20 22 26 32 40 50 62 76 Marginal Physical Product (MPP) Marginal Value of Product (MVP), = MPP*P 5 Wage Rate (W) 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Marginal Net Benefit, = MVP ‐ W Cumulative Net Benefit