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Tutorial 7

The document covers production costs, explaining the relationship between marginal cost and average total cost, and includes exercises on calculating variable costs and analyzing output with varying labor inputs. It also presents scenarios involving a collision repair shop and a copier store, requiring completion of tables and graphing of cost curves. Key concepts include the impact of labor on output, average variable costs, and the shape of cost curves.

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3 views2 pages

Tutorial 7

The document covers production costs, explaining the relationship between marginal cost and average total cost, and includes exercises on calculating variable costs and analyzing output with varying labor inputs. It also presents scenarios involving a collision repair shop and a copier store, requiring completion of tables and graphing of cost curves. Key concepts include the impact of labor on output, average variable costs, and the shape of cost curves.

Uploaded by

tabassumfaiza.personal
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Tutorial 7 (Production Costs)

1. Explain why the MC curve intersects the average total cost curve at the level of output
where average total cost is at a minimum.

2. Fill in the missing values in the following table:


Quantity of Workers Total Output Marginal Product of Labor Average Product of Labor
0 0
1 400
2 900
3 1500
4 1900
5 2200
6 2400
7 2300

3. Use the numbers from Q2 to draw one graph showing how total output increases with the
quantity of workers hired and a second graph showing the marginal product of labour and
the average product of labour.

4. Suppose the total cost of producing 10,000 tennis balls is RM30,000 and the fixed cost is
RM10,000.
a. What is the variable cost?
b. When output is 10,000, what are the average variable cost and the average fixed cost?
c. Assuming that the cost curves have the usual shape, is the dollar difference between the
average total cost and the average variable cost greater when the output is 10,000 tennis
balls or when the output is 30,000 tennis balls? Explain.

5. Suppose that Bill owns an automobile collision repair shop. The following table shows
how the quantity of cars Bill can repair per month depends on the number of workers he
hires. Assume that he pays each worker $4000 per month and his fixed cost is $6000 per
month. Using the information provided, complete the table.
6. Santiago Delgado owns a copier store. He leases two copy machines for which he pays $20
each per day. He cannot increase the number of machines he leases without giving the
office machine company six weeks’ notice. He can hire as many workers as he wants, at a
cost of $40 per day per worker. These are the only two inputs he uses to produce copies.
a. Fill in the remaining columns in the following table.
b. Draw the average total cost curve and marginal cost curve for Santiago’s store. Do these
curves have the expected shape? Briefly explain.

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