Question

3. Use the following table to complete the question.

Workers	Output	Marginal Product	Total Cost	Average Total Cost	Marginal Cost
0	0
1	20
2	50
3	90
4	120
5	140
6	150
7	155

a) A worker costs $100 a day, and the firm has fixed costs of $200. Use this information, fill in the table.

b) What is the relationship between average total cost and marginal cost?

c) What is the relationship between marginal product and marginal cost?

Answer 1

(a)

MP = Change in Q / Change in L

TC = FC + VC = 200 + 100L

ATC = TC/Q

MP = Change in TC / Change in Q

L	Q	MPL	TC	ATC	MC
0	0		200
1	20	20	300	15	0.75
2	50	30	400	8	-0.23
3	90	40	500	5.56	-0.06
4	120	30	600	5	-0.02
5	140	20	700	5	0
6	150	10	800	5.33	0.03
7	155	5	900	5.81	0.09

(b)

• When ATC is decreasing, MC is lower than MC.
• When ATC is increasing, MC is higher than MC.
• The ATC and MC curves intersect atthe minimum point of ATC.

(c)

• When MP is increasing, MC is decreasing.
• When MP is decreasing, MC is increasing.
• When MP is maximized (minimized), MC is minimized (maximized).