Question

1. Explain the behavior of marginal physical product of labor, as labor input increases with capital remaining constant. State the law that we get in this regard.

2.The total cost function of a firm is TC = 100 + 10 Q -2 Q 2 + 3 Q 3 where TC and Q denote total cost and output, respectively. Determine the level of fixed cost (if any), and equations for average total cost and average variable cost.

Answer 1

1) This is known as Law of diminishing returns of labor

As labor input increases, marginal product of labor decreases if capital is kept constant. This hapens because as more and more labors are hired keeping capital (say land) constant then efficiency decreases as there is a chaos and mismanagement and workers are not able to perform efficiently.

2) I am assuming Total cost As FC not given we will assume it to be 0 then ATC becomes AVC