- Timber Products Inc. processes raw lumber into finished building
products. The capital equipment used to mill the wood requires at
least 8 workers if the firm is to produce output at the lowest
possible unit cost. Describe the likely path of the marginal
product and average product of labour as this firm increases its
workforce from 2 to 8 workers and then to 16 workers.
- Suppose LeBron James (an NBA star) averages 25 points per
game going in to the last game of the season, in which he collects
only 12 points. Use the concepts of marginal and average to
describe the effect on this player’s stats.
- An electronic-parts manufacturer with U-shaped short-run cost
curves is producing 10 000 units per month and has short-run
costs as follows:
a. At this level of output, has the firm started experiencing
diminishing marginal and average returns? How do you
know?
b. At this level of output, is the firm operating below, at, or
above its capacity? How do you know?
Now consider a second firm in the same industry. When
it produces 10 000 units per month, its short-run costs are
as follows:
ATC=$6.50
AVC=$4.50
AFC=$2.00
MC=$6.90
ATC=$6.00
AVC=$4.50
AFC=$1.50
MC=$3.50
