A construction company pays its workers an annual salary,...

A construction company pays its workers an annual salary, but hires all machinery day-to-day depending on the work required. Which of the following statements is true about the short run for this company? As output increases, ATC always decline Labour is a fixed cost As output increases, AVC always decline AVC depend on the price of labour

Transcript

00:01 A firm's short run production function shows the relationship between the firm's imputes and outputs.

00:08 Assume that the firm uses one variable cost, one fixed cost, one fixed imputes capital while giving a table that shows the short run production function for a firm that produces widgets.

00:23 Where to calculate the marginal cost of the sixth worker, the does the production function exhibits diminishing returns to labour and when the marginal product is falling what happens to marginal costs.

00:38 Lastly on a single graph draw the firm's short run average total cost curve, the average variable cost curve and the marginal cost curve.

00:47 So for the first question we can determine the marginal product of labour using the formula npl is equals to the change in q over change in l.

00:58 So in part a we are required to calculate the marginal product of labour for the sixth unit of labour.

01:04 So when l1 is 5, the output q1 is equals to 39 units and when l2 is 6, the output q2 is equals to 42.

01:15 So we plug in the values in the formula of npl we get tpl is equals to q2 minus q1 over l2 minus l1.

01:25 So the npl is equals to 42 minus 39 over 6 minus 5 and this is 3.

01:34 So now the npl for all levels of outputs.

01:41 We're going to have l, q and npl.

01:47 So at 0, 0 there's no npl.

01:51 At 1 and 6 the npl will be 6...

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