chp13

Economists normally assume that the goal of a firm is to

 

maximize its profit.

Profit is defined as

total revenue minus total cost.

For a firm, the production function represents the relationship between

quantity of inputs and quantity of output.

The marginal product of an input in the production process is the increase in

quantity of output obtained from an additional unit of that input

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William’s marginal product?

15 bouquets (35-20)

Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 181 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is

16 units of output.

Table 13-1

Number of Workers	Total Output	Marginal Product
0	0	--
1		30
2		45
3		60
4		50
5		40

Refer to Table 13-1. What is total output when 1 worker is hired?

30

Table 13-2

Number of Workers	Total Output	Marginal Product
0	0	--
1	300
2	500
3	600
4	650

Refer to Table 13-2. What is the marginal product of the third worker?

100 units

Refer to Figure 13-2. As the number of workers increases,

total output increases but at a decreasing rate.

Some costs do not vary with the quantity of output produced. Those costs are called

fixed costs

Total cost can be divided into two types of costs:

fixed costs and variable costs.

Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs?

the cost of bookkeeping services

Marginal cost is equal to

ΔTC/ΔQ.

Marginal cost tells us the

amount by which total cost rises when output is increased by one unit.

Table 13-8

Quantity of Output	Fixed Cost	Variable Cost
0	$20	$0
1	$20	$10
2	$20	$40
3	$20	$80
4	$20	$130
5	$20	$200
6	$20	$300

Refer to Table 13-8.What is the marginal cost of producing the fifth unit of output?

$70 ($200-$130)

Table 13-8

Quantity of Output	Fixed Cost	Variable Cost
0	$20	$0
1	$20	$10
2	$20	$40
3	$20	$80
4	$20	$130
5	$20	$200
6	$20	$300

Refer to Table 13-8.What is the average fixed cost of producing 5 units of output?

$4 ($20 / 5)

Table 13-8

Quantity of Output	Fixed Cost	Variable Cost
0	$20	$0
1	$20	$10
2	$20	$40
3	$20	$80
4	$20	$130
5	$20	$200
6	$20	$300

Refer to Table 13-8.What is the average variable cost of producing 5 units of output?

$40 ($200/5)