Question
Capital Labor 0 1 2 3 4 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 1 0
Capital | ||||||||||
Labor | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
1 | 0 | 2 | 6 | 14 | 24 | 36 | 42 | 46 | 48 | 48 |
2 | 0 | 6 | 24 | 60 | 120 | 170 | 210 | 240 | 260 | 270 |
3 | 0 | 14 | 60 | 170 | 210 | 240 | 300 | 360 | 420 | 460 |
4 | 0 | 24 | 120 | 210 | 260 | 420 | 560 | 680 | 760 | 820 |
5 | 0 | 36 | 170 | 240 | 420 | 820 | 1000 | 1140 | 1240 | 1320 |
6 | 0 | 42 | 210 | 300 | 560 | 1000 | 1400 | 1700 | 1900 | 2000 |
7 | 0 | 46 | 240 | 360 | 680 | 1140 | 1700 | 2200 | 2600 | 2800 |
8 | 0 | 48 | 260 | 420 | 760 | 1240 | 1900 | 2600 | 3000 | 3200 |
9 | 0 | 48 | 270 | 460 | 820 | 1320 | 2000 | 2800 | 3200 | 3400 |
(a) The traditional distinction economists make between short-run and long-run production decisions is that in the long run all inputs are variable, whereas in the short run, some inputs are fixed. With that in mind consider the production options highlighted in the above grid if the amount of capital were to be fixed at 2 units. Based on the numbers provided, use excel to set up two diagrams (a.k.a. Excel charts): the first one showing the firm's short-run production curve and the second one showing its short-run marginal production curve. Note that in both of these charts you should have the amount of labor on the horizontal axis. Also, keep in mind that when you graph marginal values (such as marginal product) since marginal values are calculated over a range, in your diagrams you should put the marginal value in the middle of the horizontal range that they are calculated over.
(b) Copy both your charts into a Word or pdf file that also has an essay that (i) explains the relationship between the two curves (i.e., how the slope of the short run production curve in your chart is related to the short-run marginal product of labor), and (ii) also discusses the relationship and the difference between the short-run and the long-run decisions made by the firm.
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