Production Function to Cost Function

Directions: This exercise has two parts. In the rst, you will begin with a production function for a grocery delivery service and link it to its cost function. In the second part, you will identify the explicit and implicit costs of production and nd the accounting and economic prot to make an economic decision. Important: Show all work, including formulas used and plug-in values. Use productivity tools where appropriate. No hand drawn work, photos, or screen shoots, please. Part 1- Production Function to Cost Function (50 points) Suppose Ben is starting a grocery delivery company, which takes grocery orders from customers, goes to the grocery store, buys the groceries, and delivers them to the customers' homes. Employees will receive orders from customers on a cell phone, for which the company pays $10 per day for service. To make deliveries to customers, he will rent a delivery van which seats two people for $50/day. He plans on hiring between 1 and 6 employees to take the orders, do the grocery shopping, and make the deliveries. He will pay each worker $90 in wages per day. The following is the business\" production function. LaborOutputMarginal Variable Total Average Average Marginal Product Cost Cost Variable Total Cost Cost Cost 0 0 l 4 2 9 3 13 4 16 5 18 6 19 1. Find the marginal product of labor and enter it into the third column of the table. Where is the point of diminishing returns? Explain the conditions that would lead to diminishing returns for this business. There's an old saying \"the more the merrier,\" but is this always the case? Can you think of a scenario in which too much labor would decrease output? 2. Identify xed and variable costs. . Complete the table by nding variable cost, total cost, marginal cost, average variable cost, and marginal cost for each level of output. You are welcome to add additional columns to the table if you would nd it helpful. 4. Explain how marginal cost inuences average variable and average total cost. 5. If Ben charges $30 per delivery, will he earn prot? How can you tell? 6. Graph each of the following separately, using productivity tools (e.g., Excel): a. Production function. h. Marginal product curve. c. Cost function (include the average xed cost, average total cost, and marginal cost curves all in ONE combined graph). DJ