the extra cost from hiring the last worker equals the cost of the product. the additional cost at hiring the last worker equals the marginal factor cost of the worker. the extra revenue from hiring the last worker equals the marginal physical product of labor. Which of the costs below do not vary when a firm changes its level of production?įixed costs are costs that do not vary as output varies.Ĭonsider the figure above.Transcribed image text: A profit-maximizing firm will hire additional units of labor until the additional cost of hiring the last worker equals the additional revenue generated by that worker. In the short run, as more of the variable input is hired, marginal product may at first increase, but it will eventually decline. Which of the graphs above show marginal productivity first rising and then declining? Specialization and an assembly line production process will enable a firm to capitalize on economies of scale. If a firm wants to take advantage of economies of scale, they mightĬonvert the production process into an “assembly line”.
The production function shows the relationship between the quantity of inputs used in production (for example labor) and the quantity of output produced. The inputs to production and the quantity of output produced. The production function shows the relationship between Marginal product is calculated as the change in output divided by the change in labor. What is the marginal product of the second worker? The marginal product of labor is calculated as the change in Q divided by the change in L.Ĭonsider the table above. What is the Marginal product of the 3rd worker? Accounting profit takes into account explicit costs only, whereas economic profit considers both explicit and implicit costs.Ĭonsider the table above.
Remember the difference between accounting profit and economic profit is in the way costs are calculated. For his first year of business, Bob’s accounting profit was _, and his economic profit was _. In Bob’s first year of business he earned $80,000 in revenue and the cost of ingredients (flour, tomato sauce, cheese, etc.) was $67,000. Bob used $10,000 from his own savings account and borrowed $200,000 more from his bank. This tends to increase productivity and reduce costs.īob used to earn $40,000 per year in his job as a nurse, but he quit in order to open his own pizza shop. What is the average fixed cost at 24 units of output?įirms can capitalize on economies of scale by allowing workers to specialize in specific tasks. AFC continually decreases as output expands.Ĭonsider the table above. ATC is highest at low levels of output since AFC is highest at low levels of output. This is according to the law of diminishing marginal productivity.Īt low levels of output, average total cost is high due to high levels of If output is on the vertical axis and labor is on the horizontal axis, then output expands as additional labor is hired – but at a diminishing rate. Which graph represents a production function? When marginal product falls, marginal cost rises.Ĭonsider the figure above. The slope of the production function is marginal product. The slope of the production function reflects The average product of labor is calculated as Q/L.Ĭonsider the graph above. What is the average product when 4 workers are hired? In the long run all inputs may vary.Ĭonsider the table above. In the short run at least one input is fixed.
The marginal product of labor is the additional output produced by the last worker hired.Īt least one input to production is fixed in quantity. The extra output that the last worker hired adds to total production is called the Total opportunity costs include both explicit and implicit costs. ECON 102_Quiz 5_ Study Guide with AnswersĪ firm’s product price multiplied by the total number of items sold is calledĪ firm’s total revenue is equal to price multiplied by quantity.Įconomic profit is total revenue less total opportunity costs.
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