Question 3
The following table describes the costs faced by a firm. The only variable resource the firm uses is labor.
QVC
0
10
1
30
2
3
100
4
150
5
210
6
TC
50
80
150
260
AFC
AVC
10
20
30
35
ATC
60
36.67
37.50
43.33
MC
10
30
60
(a) Fill in the missing values in the table.
(b) Does the firm face increasing or decreasing marginal product of labor? Explain how you can tell.
Question 4
The widget industry is perfectly competitive, and the current market price of a widget is $60. A typical firm
in this industry chooses to produce 200 widgets. The total fixed cost paid by each firm is $2000.
(a) To produce a quantity of 200 widgets, the firm employs 300 workers, at a wage of $20. What is the
firms average variable cost (AVC) at a quantity of 200 widgets?
(b) Sketch a diagram showing the optimal decision of the firm. Your diagram should include the following
curves: MC, MR, ATC, AVC.
(c) Label on your diagram the price of $60, the quantity of 200, as well as the values of ATC and AVC at
a quantity of 200 units.
(d) What profit/loss is the firm currently making?
(e) In the long run, will the price of widgets be above or below $60? Explain your answer.
