Group+4+Cost+Curves

=Group 4: Cost Curves=

Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. Please complete the following table and answer the questions below.

__Dev Pandya__
 * **Number **

**of **

**Workers ** || **Number **

**of **

**Machines ** || **Output **

**(corks produced **

**per hour) ** || **Marginal Product **

**of Labor ** || **Cost of Workers ** || **Cost of Machines ** || **Total Cost ** || **Marginal Cost ** || || 0 || 40 || 40 || ||
 * 0 || 2 || 0 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">1 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">5 || 5 || 12 || 40 || 52 || 12 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">10 || 5 || 24 || 40 || 64 || 12 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">3 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">20 || 10 || 36 || 40 || 76 || 12 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">4 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">35 || 15 || 48 || 40 || 88 || 12 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">5 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">55 || 20 || 60 || 40 || 100 || 12 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">6 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">70 || 15 || 72 || 40 || 112 || 12 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">7 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">80 || 10 || 84 || 40 || 124 || 12 ||

<span style="color: #000000; font-family: 'Times New Roman','serif';">A. Over what range of workers does labor exhibit diminishing marginal productivity?

__Dev Pandya__ Labor exhibits diminishing marginal productivity in the range of 5 workers to 7 workers. The marginal product of labor begins to fall after Gallo hires more than 5 workers.

<span style="color: #000000; font-family: 'Times New Roman','serif';">B. On a well-annotated graph, provide a rough sketch of the firm’s average variable costs (AVC), average fixed costs (AFC), average total costs (ATC), and marginal costs (MC).

__Dev Pandya__

Workers ||> ATC (TC/Q) ||> AFC (FC/Q) ||> AVC (VC/Q) ||
 * > Number of
 * > 0 ||> 0 ||> 0 ||> 0 ||
 * > 1 ||> 52 ||> 40 ||> 12 ||
 * > 2 ||> 32 ||> 20 ||> 12 ||
 * > 3 ||> 25.33 ||> 13.33 ||> 12 ||
 * > 4 ||> 22 ||> 10 ||> 12 ||
 * > 5 ||> 20 ||> 8 ||> 12 ||
 * > 6 ||> 18.67 ||> 6.66 ||> 12 ||
 * 7 || 17.71 || 5.71 || 12 ||

<span style="color: #000000; font-family: 'Times New Roman','serif';">C. If cork production is a competitive market and the market price of corks is $0.60, how many corks should the firm produce? How many workers’ should it hire? Illustrate on the graph the firms’ profits from cork production.

We compared the marginal cost with the marginal revenue by looking at the graph produced above. We multiplied the quantity of corks produced at each level of production by .60 which is the marginal cost.

5 x 0.6 = 3 10 x 0.6 = 6 20 x 0.6 = 12 35 x 0.6 = 21 55 x 0.6 = 33 70 x 0.6 = 42 80 x 0.6 = 48

From the information gathered, I then subtracted each level from the next level to find the change in total revenue. 6 - 3 = 3 12 - 6 = 6  21 - 12 = 9  33 - 21 = 12  42 - 33 = 9  48 - 42 = 6

Marginal revenue = change in revenue / change in quantity

3/5 = 0.6 6/10 = 0.6  9/15 = 0.6  12/20 = 0.6  9/15 = 0.6  6/10 = 0.6

In conclusion, at the 55 corks produced an hour level the marginal revenue equals the marginal cost

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