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A firm produces good x using capital, K, and labor, L, as inputs in production. The firm's production and cost functions in the short-run is

  1. A firm produces good x using capital, K, and labor, L, as inputs in production. The firm's production and cost functions in the short-run is given below.
K L MPL TP or Q TFC TVC TC AFC AVC ATC MC
7.75 8 - 329 - - - -
7.75 9 332
7.75 10 - 333 - - - - - - -

PK=20, PL=10

a. Calculate the marginal product (of labor) (MPL), total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and marginal cost (MC) if the firm produces 332 units. (For MC, you need first to calculate TC if the produces 329 units.)

b. Based on the average total cost and marginal cost that you have calculated, is ATC increasing, decreasing, or at the minimum value in the short-run?In no more than one sentence, explain why.

c. If the firm wants to minimize its total cost of production at 332 units of output level (in the long-run), what is the cost minimization condition to use in determining the combination of capital and labor?

d. What should the marginal product of labor-to-marginal of product of capital ratio (MPL/MPK) be equal to?

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