Question

MicroEcon

PLEASE EXPLAIN ANSWERS

Use the table below to answer questions 4 to 6

Units of Capital	Units of Labor	Output
2	0	0
2	1	20
2	2	50
2	3	75
2	4	80

4. The marginal product of the second unit of the variable input (labor) is

(a)        20                                            (c)        30

(b)        25                                            (d)       50

5.   Diminishing marginal productivity occurs with which unit of labor?

(a)        first                                          (c)        third

(b)       second                                     (d)       fourth

6.   Short run marginal costs rise because of

(a)        rising prices of variable inputs                     

(b)        declining productivity of fixed factors of production

(c)        diminishing marginal productivity of variable inputs           

(d)       reduced incentives to work in large plants

7.   When average total cost is declining as output increases, marginal cost must be

(a)        declining                                 (c)        above average total cost

(b)        below average total cost                     (d)       rising

8. Total cost is $30 at 10 units of output and $32 at 11 units of output. In this output range, marginal cost must be

(a)        equal to average total cost                  (c)        less than average total cost

(b)        greater than average total cost                        (d)       indeterminate

Answer 1

4. (C) Marginalproduct = ∆Total product/ ∆units of variable input

= 50-20/ 2-1= 30

5. (C)

Marginal product at 0 unit is nil

Marginal product at 1 unit is 20 i.e (20-0)

Marginal product at 2 unit is 30 i.e ( 50-20)

Marginal product at 3 unit is 25 i.e. ( 75-50)

Marginal product at 4 unit is 5 i.e. ( 80-75)

Marginal product decrease from 3 unit.

6. (C) in diminishing returns to factor, MArginal product falls ,as a result Marginal cost rises.

7. (B) when average cost falls., Marginal cost must be below average total cost. When average cost falls, marginal cost first falls, then reaches minimum and constant and then rises even when average cost falls.

8.( C) Units 10, Total cost 30, average cost = 30/10 = 3

Units 11 , total cost 32, average cost = 32/11 = 2. 9

Marginal cost = ( 32-30)/(11-10)

= 2

Marginal.cost must be less than average cost.