Analysis of production level and costs 5.2

Instructions

Part I- Complete the following table related to an example of the theory of production calculating the marginal product and the average product. After completing the table, answer each of the parts.

No. of Workers Total Production Marginal Product Average Product 0 0 1 30 2 64 3 102 4 130 5 148 6 160 7 166 8 184 

a) Prepare two graphs: on the first graph it represents total production, on the other graph it represents marginal production and average production. Explain in detail the relationship between each pair of curves.

b) Explain in detail each of the three observed levels of the marginal product.

c) What influence does the law of diminishing returns have on short-term production costs? Explain.

Part II- Evaluate the economic efficiency and balance of a company that has fixed costs of $ 80.00 and variable costs as indicated in the table.

Total Production/Fixed Cost/ Variable Cost/ Total Cost/ Average Fixed Cost (CPF)/

0 0

1 60

2 100

3 135

4 165

5 200

6 240

7 285

8 340

9 405

10 480

Average Variable Cost (CPV)/ Total Average Cost (CPT)/ Marginal Cost (CMg)

a) After completing the table, make a graph to represent the total fixed cost, the total variable cost and the total cost of the company. Explain how the law of diminishing returns influences the shapes of the variable cost and total cost curves.

b) Produce a graph for the CPF, CPV, CPT, and CMg. Explain how it is calculated, the shape of each of these four curves, and the relationships between them.

c) Explain how the location of each curve on the graph would be altered if the total fixed cost changes to $ 110.00 instead of $ 80.00.