1. Total, average, and marginal physical product Underground Sandwiches, a sandwich shop, has the following marginal physical product curve (labeled MPP) for its hourly production. Note: Marginal values are sometimes plotted between integers (to indicate that they represent changes incurred in moving from one integer to the next), and sometimes they are plotted directly on the integers with which they are associated. For the context of this graph, they are plotted between integers. For example, if the marginal physical product from one unit of labor to two is x, this point is plotted at (1.5, x). 20 18 16 O APP 14 O 12 O 10 O MPP and APP (Sandwiches per hour) 8 6 4 MPP O 2 0 2 3 4 5 QUANTITY OF LABOR Then labor increases from two to three workers, total physical product by per hour.Use the orange points (square symbol) to plot the total physical product curve on the following graph. Assume that if there are no workers, Underground Sandwiches does not produce output.60 54 i TPP 42 36 30 24 TOTAL OUTPUT (Sandwiches per hour) QUANTITY OF LABOR On the graph showing the marginal physical product (MPP) curve, use the purple points {(diamond symbol) to plot the average physical product curve (APP) at one, two, three, four, and five workers. The marginal physical product (MPP) curve and average physical product (APP) curve intersect at the w of the W curve. 5. Various measures of cost Douglas Fur is a small manufacturer of fake-fur boots in San Francisco. The following table shows the company's total cost of production at various production quantities. Fill in the remaining cells of the table. Total Total Fixed Total Variable Marginal (Variable) Average Variable Quantity Cost Cost Cost Cost Cost Average Cost (Dollars per (Pairs) (Dollars) (Dollars) (Dollars) (Dollars) (Dollars per pair) pair) 0 60 160 2 220 3 270 4 340 5 450 6 630On the following graph, plot Douglas Fur's average cost (AC) curve using the green points (triangle symbol). Next, plot its average variable cost (AVC curve using the purple points (diamond symbol). Finally, plot its marginal (variable) cost (MVC) curve using the orange points (square symbol). (Hinl For AC and AVC, plot the points on the integer: For example, the average cost of producing one pair of boots is $160, so you should start your average cost curve by placing a green point at (1, 160). For marginal (variable) cost, plot the points between the integers: For example, the margina (variable) cost of increasing production from zero to one pair of boots is $100, so you should start your marginal (variable) cost curve by placing an orange square at (0.5, 100).) \f6. Costs in the short run versus the long run Ike's Bikes is a2 major manufacturer of bicycles. Currently, the company produces bikes using only one factory. However, it is considering expanding production to two or even three factories. The following table shows the company's short-run average cost each month for various levels of productior if it uses one, two, or three factories. (Note: () equals the total quantity of bikes produced by all factories.) Average Cost (Dollars per bike) Number of Factories ( =100 @ =200 (@ =300 Q=400 Q=500 ( =600 1 260 200 160 200 280 400 2 330 240 160 160 240 330 3 400 280 200 160 200 260 Suppose Ike's Bikes is currently producing 200 bikes per month in its only factory. Its short-run average cost is per bike. Suppose Ike's Bikes is expecting to produce 200 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using v . On the following graph, plot the three short-run average cost (SR.AC) curves for Ike's Bikes from the previous table. Specifically, use the green points triangle symbol) to plot its short-run average cost if it operates one factory (SRAC,); use the purple points (diamond symbol) to plot its short-run average cost if it operates two factories (SRAC2); and use the orange points (square symbol) to plot its short-run average cost if it operates three factories (SR.AC3). Finally, plot the long-run average cost (LRAC) for Ike's Bikes using the blue points (circle symbol).400 A 360 SRAC 320 280 bllars per bike 240 SRAG? 200 160 SRAC? 120 O 80 LRAC 40 0 0 100 200 300 400 500 600 700 QUANTITY OF OUTPUT (Bikes) the long run, over which range of output levels does Ike's Bikes experience decreasing returns to scale? O Fewer than 300 bikes per month More than 400 bikes per month O Between 300 and 400 bikes per month9. Historical vs analytical cost curves The following graph shows the historical cost curve (black curve) and the analytical cost curves for both 1940 (purple curve) and the current year (orange curve) in the public utilities industry in the fictitious country of Cuytuodan. Suppose that both in 1940 and currently, only one large firm supplies utilities in Cuytuodan. 100 90 1940 Analytical Cost Curve 80 70 Current Analytical Cost Curve 60 COST PER UNIT (Dollars) 50 40 Historical Cost Curve 30 20 10 0 0 1 2 3 5 6 8 9 11 QUANTITY OF OUTPUTBased only on the historical cost curve, you cannot say with certainty that a larger firm can currently supply utilities to Cuytuodan more cheaply than smaller firms because of economies of scale. O True O False Based on the shapes and positions of the analytical cost curves, in 1940 it was W, per unit of output, for small firms to supply utilities to Cuytuodan than for one large firm to do so. Currently, it is W, per unit of output, for small firms to supply utilities to Cuytuodan than for to one large firm to do so. 10. Producer theory with production indifference curve Suppose a firm has two inputs: capital and labor. The following table shows how much labor the firm needs to produce 100, 200, or 300 units of output if it has 1, 2, 3, or 4 units of capital: Labor Input (Hours) Quantity Produced With 1 Unit of Capital With 2 Units of Capital With 3 Units of Capital With 4 Units of Capital 100 55 20 10 5 200 80 40 25 15 300 90 55 35 20 On the following diagram, plot this firm's production indifference curves for 200 and 300 units of output. Specifically, use the purple points (diamonc symbol) to plot the production indifference curve corresponding to 200 units of output; use the green points (triangle symbol) to plot the production indifference curve corresponding to 300 units of output. > 4 4 Production Indifference Curve (Q = 200) . A = 3+ Production Indifference Curve (Q = 300) G z = = 2 4 o 3 1 -+ 0 t t t t t t t t t { LABOR. (Hours of labor) Assume that the price of labor is $10 per hour, and the price of capital is $200 per unit. Given these input prices, the least expensive way to producs 100 units of output is to use W of capital and "W hours of labor. Suppose the firm's production indifference curve corresponding to an output of 100 units can be approximated by the smooth curve, labeled "Q=10( on the following graph. Suppose the firm's production indifference curve corresponding to an output of 100 units can be approximated by the smooth curve, labeled "Q=10( on the following graph. Using the green line (triangle symbols), add the lowest budget line that the firm can attain at the given prices for capital and labor. Then use the bl: point (plus symbol) to identify the least-cost combination of labor and capital that can be used to produce an output level of 100. @ 5 nee - 4 Least Cost Combination . PaN = = . . 8 3 | Cost-min budget line s s = 2 2 1 = 3 1 Q=100 0 + + b b b b b b b b | 11. Using production indifference curves to determine the least-cost combination of inputs You are a department manager in a large consulting firm, and you have an assignment to produce a customized automated billing system for a client in the next week. Your boss asks you to find the least costly way to produce the billing system. In order to produce the billing system, you'll need to use computers and programmers. The production indifference curve on the following graph shows the combinations of computers and programmers that you can use to create the billing system in a week. Production Indifference Curve 9 3 $600 Budget Line W g 7 A 3 8 6 Cost-min budget line G g 5 . E = % 4 Least Cost Combination =L |_ T 3