2. Production in theshort run

a. Thelaw of diminishing returnsstates that as additional units of a(n) _________________

input are added to a(n) _________________________ input, ceteris paribus,eventuallythe

resulting additional ______________________________________________ willdecline.

b. Adding more labor to the production process results indiminishing returnsto labor b/c:

c. TF If capital and labor are the only two inputs in the production process, as we addmore labor to more capital, eventually the law of diminishing returns will set in.

3.Write out the per unit formulasto help with parts of question #4

a.Marginal product (MP) =

b.Marginal cost (MC) =

4.Adirondack Woodworking Company produces kitchen cutting boards.The only inputs are onemachine, asmall building, and wood (the wood is available free of charge in unlimitedquantities).The firm'sproduction functionisgiven in columns (1) and (2).It shows the firm'slevel of output as moreworkersare employed per week.The cost of each worker is $100 perweek and total fixed costs equal $200 perweek.Fill in the missing economic datain the table.

__Product____TotalCost ($)___

(1)(2)

LaborTotalMarginal TVCTFC TC MC

a. 0 0 ** 0 200. 200 **

b. 1 40 40. 100 ____. ____ 2.50

c. 2 10060. ____ ____ ___ _____

d. 3 140____ _____ ____ ____ ___

e. 4 170____ ____ ______ ___ __

f. 5 19020 ____ _____ ___ 5.00

g.6 20033.33 ____ _____ ____ ___

h. Based on the above data indicate whether the firm operating in theshort runor thelong run.

Explain how you know.

Ch9

5.Variable cost and fixed cost

a.TFAvariable costis a cost that varies with the level of productionor output.

b.TF Variable costs can never increase or decrease.

c.TF Afixed costis a cost that does not vary with the level of productionor output.

d.TF Fixed costs can never increase or decrease.

e.TF Fixed costs are associated with any input whose price is fixed.

f.TF Fixed costs are irrelevant for operating decisions or deciding how much to produce.

g.TF Total fixed costs equal zero when the firm decides to temporarily close down.