1. Firm Measures: Productivity, Costs, and Profits

Labor Total Product (TP) Fixed Cost (TFC) Variable Cost (TVC)

0 0 $8000 $ 0

1 16000 $8000 $ 72,000

2 50000 $8000 $ 92,000

3 60000 $8000 $172,000

4 64000 $8000 $312,000

a. Solve for average product (AP) in each row, except for where labor = 0.

b. Solve for marginal product (MP) in each row, except for where labor = 0.

c. Which worker(s) are in the region of diminishing marginal returns?

d. Which worker(s) are in the region of increasing marginal returns?

e. Of the regions from parts c and d, state in which region(s) the firm will choose to produce.

f. Specialization and division of labor are observed in which one of the three regions? How do specialization and division of labor lead to marginal product moving in this direction?

g. What is the three part relationship between the MP and the AP?

h. Solve for total cost (TC) in each row.

i. Graph the TFC and TC curves for this firm. Make sure to label the axes.

j. Solve for the average total cost (ATC) in each row, except for where labor = 0.

k. Solve for the marginal cost (MC) in each row, except for where labor = 0.

l. While the TVC and TC curves are parallel, why are the AVC and ATC curves not parallel?

m. Why are the productivity and cost, as seen by the relationship between the AVC and AP as well as the relationship between the MC and MP, inversely related? While it is because as one increases, the other decreases, please explain the inverse relationship that exists between worker productivity and cost, in general.

n. When deciding whether to make a change, like start a new job or business, why

does one look at the economic profit instead of the accounting profit?