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2. Are the following statements true or false?

a. The average product of labor (APL ) may be increasing even if the marginal product of labor (MPL) is falling.

b. Diminishing marginal returns begin when APL = MPL.

c. If APL is falling then the total product must be decreasing.

d. MPL. is at its maximum when APL = MPL.

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019
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Related questions

Production/Cost Exercises 1. The following is a short-run production table for a firm with labor as its only variable input. Wage = $ 310 Capital = 100 Capital Price= $20 Product Price= $65

Labor Output

0 0

1 50

2 110

3 160

4 200

5 230

6 250

7 260

8 265

9 260

10 250

A. Determine the following measures at all levels of output: MPL, APL, TFC, TVC, TC, TR, AVC, ATC, AFC, MC, PROFIT.

B. At what level of output is the profit maximized?

C. What kind of observations can you make about MC, price, average total cost, and profit?

The following table summarizes the short-run production function for your firm. Your product sells for $10 per unit, labor costs $40per unit, and the rental price of capital is $10 per unit. Complete the following table, and then answer the accompanying questions.

L K Q MPL APL APK VMPL
0 5 0
1 5 20
2 5 60
3 5 120
4 5 160
5 5 180
6 5 190
7 5 190
8 5 180
9 5 160
10 5 120
11 5 60

(a) Which inputs are fixed inputs? Which are the variable inputs?


(b) How much are your fixed costs?


(c) What is the variable cost of producing 40 units of output?


(d) How many units of the variable input should be used to maximize profits?


(e) What are your maximum profits?


(f) Over what range of variable input usage does increase marginal returns exist?


(g) Over what range of variable input usage do decrease marginal returns exist?


(h) Over what range of variable input usage do negative marginal returns exist?

a) Define A , K , and L

b) What does it mean that Y is proportional to A?


c) What does it mean that the marginal product of capital (MPK) and the marginal product of labor (MPL) are greater than zero? Show that the marginal products are positive in the Cobb-Douglas case.

d) What does it mean that the marginal product of capital (MPK) and the marginal product of la- bor (MPL) are decreasing? Show that the marginal products are decreasing in the Cobb-Douglas case.

e) What does it mean that the marginal product of capital (MPK) is increasing in labor? Show that the marginal product of capital increases as labor increases. Is the same true for capital?

f) Does the Cobb-Douglas production function display “constant returns to scale?” (Doubling both inputs doubles outputs). If this is true, show it, otherwise, show it is false.

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