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    Marginal Cost, Total Fixed Product, and More

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    1. ABC Manufacturing Company provided you with the following production data for the month of January. Complete the table:

    Units of Labor Total Output Average Product Marginal Product
    0 0

    1 200

    2 450

    3 660

    4 840

    5 940

    2. Armel consumes two commodities only, meat and potato. His marginal utility of a unit of meat is 300 and each unit is purchased at $5. Marginal utility of a unit of potato for Christopher is 50 and the cost of each unit is 10.
    a) Does Hamid consume an optimal combination of the two commodities? Why?
    b) What do you recommend to him?

    3. Assume that the last dollar invested in labor provides you with $30 of revenue while the last dollar invested in capital yield $100. If capital has a unit cost of $20 and labor costs $6 per unit, are you using your resources in the best possible combination? What should you do?

    4. Quantity of output (Q) and Total Cost (TC) for Saghar Incorporated is given in the table below. Complete the table where TFC = Total Fixed Cost; TVC = Total Variable Cost; AVC=Average Variable Cost; AFC=Average Fixed Cost; and MC=Marginal Cost.

    0 200
    1 250
    2 290
    3 320
    4 380
    5 500

    5. Vanegas Manufacturing Inc. has the following data regarding its costs and production for last week.

    0 $200
    1 $260
    2 $310
    3 $350
    4 $420
    5 $510

    Use the data to calculate following:
    a) Total fixed costs
    b) Total variable cost of producing 5 units
    c) Average variable cost of producing 3 units
    d) Marginal cost of the third unit
    e) Average fixed cost of producing 4 units
    f) Total cost of producing 4 units.

    6. BizWiz Corporation has observed the following data for the last week of operation. Where P = price and Q = quantity. Calculate total revenue (TR), marginal revenue (MR), and average revenue (AR) for Bijan Corporation's last week of operation.

    Q P TR MR AR
    0 $100

    1 $90

    2 $80

    3 $70

    4 $60

    5 $50

    7. Jamie, the new CEO of the City Hospital wants to utilize her hospital room's staff in a manner that leads to the least cost combination. The room's staff may be divided into two distinct categories, Registered Nurses and Nurses' Assistants. Assume that the cost of a Registered Nurse is $50 per hour while a Nurse Assistant costs $15 an hour. The marginal productivity of the staff is measured by the amount generated for the hospital per hour. Currently the marginal productivity of a Registered Nurse is $200 while that of a Nurse Assistant is $45.

    a) Is the current mix of operating room's medical staff optimal? Why?
    b) What do you recommend to the hospital CEO?

    8. Last Friday night you spend all your daily income on Steak and Ale. The marginal utility of the Stake to you was 600 utils and it cost $25. The last glass of Ale you drank cost you $5 and gave you 100 utils. Is your consumption at its optimal level? What should you do?

    9. Five years ago, Marzi started a small manufacturing company. Last weekend she was reviewing the company's operational and financial data. She noticed that during the past five years the volume have been growing steadily. Average total and average variable costs, however, have declined during the first three years of operation and sharply increased thereafter. Not knowing economics, Marzi was unable to explain her findings. Explain the outcome to her and recommend a course of action based on these findings.

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    Solution Summary

    The following posting helps with problems involving marginal cost, total fixed product and more.