Question

2. Inputs and outputs

Deborah's Performance Pizza is a small restaurant in Denver that sells gluten-free pizzas. Deborah's very tiny kitchen has barely enough room for the two ovens in which her workers bake the pizzas. Deborah signed a lease obligating her to pay the rent for the two ovens for the next year. Because of this, and because Deborah's kitchen cannot fit more than two ovens, Deborah cannot change the number of ovens she uses in her production of pizzas in the short run.

However, Deborah's decision regarding how many workers to use can vary from week to week because her workers tend to be students. Each Monday, Deborah lets them know how many workers she needs for each day of the week. In the short run, these workers are inputs, and the ovens are inputs.

Deborah's daily production schedule is presented in the following table.

Fill in the blanks to complete the Marginal Product of Labor column for each worker.

Number of Workers	Output	Marginal Product of Labor
	(Pizzas)	(Pizzas)
0	0
1	50
2	90
3	120
4	140
5	150

On the following graph, plot Deborah's production function using the green points (triangle symbol).

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

Hint: Be sure to plot the first point at (0, 0).

Production Function012345200180160140120100806040200QUANTITY OF OUTPUT (Pizzas)LABOR HIRED (Number of workers)

Suppose that labor is Deborah's only variable cost and that she has a fixed cost of $30 per day and pays each of her workers $30 per day.

Use the orange points (square symbol) to plot Deborah's total cost curve on the following graph using the quantities from the preceding table.

Total Cost020406080100120140160180200200180160140120100806040200TOTAL COST (Dollars)QUANTITY OF OUTPUT (Pizzas)

The law of diminishing marginal product of labor is demonstrated by which of the following?

Total output increases only when you increase both labor and ovens.

Total output increases at a decreasing rate as you increase the quantity of labor.

Total output declines as you increase the quantity of labor.

Answer 1

Marginal product of labor is the addition to the total product when one more labor unit is employed.

Number of workers	Output	MPL	Total cost
0	0		30
1	50	50	60
2	90	40	90
3	120	30	120
4	140	20	150
5	150	10	180

Total cost function = Variable cost + Fixed cost = 30*L + 30.

Production function is shown below. It shows the relationship between output and labor hired

Total output increases at a decreasing rate as you increase the quantity of labor reflects diminishing Marginal returns.