# Alâ€™s Bicycle Town: Production and Costs

The following table gives the total weekly output of bicycles at Al's Bicycle Town.

Table 1

Labor Total Product (TP) Average Product of labor (AP) Marginal Product of labor (MP)

0 0 na na

1 100 100 100

2 300 ----- ___

3 450 ___ ___

4 ___ ___ 110

5 630 ___ ___

6 ___ 110 ___

Complete this table.

Draw the graphs of the marginal product (MP) and the average product (AP).

To learn how to plot the data in Excel, see https://www.youtube.com/watch?v=B3U9tDcoNeI

Where do the AP and MP curve cross?

The cost of 1 worker is $2000 per month. Total fixed cost is $4000 per month.

Complete Table 2 using your answers from Table 1 and by computing total variable cost (TVC) and total cost(TC).

Table 2

Labor Total Product (TP) Total variable cost (TVC) Total cost (TC)

0 0 na 4000

1 100 2000 ___

2 300 ----- ___

3 450 ___ ___

4 ___ ___ 12000

5 630 ___ ___

6 ___ 12000 ___

Draw the graphs of the TC and TVC curves. What is the relationship between these two curves?

Complete Table 3 by using your answers from the previous Tables and calculating the AVC, ATC, and MC.

Table 3

Total Product (TP) Average variable cost (AVC) Average total cost (ATC) Marginal cost (MC)

0 na na na

100 20 ___ 20

300 ----- ___ ___

450 ___ ___ ___

___ ___ 21.43 ___

630 ___ ___ ___

___ ___ ___ 66.67

Draw the graphs of the ATC, AVC, and MC curves. What is the relationship between the ATC and AVC curves? Between the MC and AVC curves?

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#### Solution Preview

Hi, refer to the attached file please. I put the answers in red, and you find the explanation of the answers below. I used the 2nd sheet in the Excel file to draw the graphs.

TABLE 1:

AP = TP / labor, that's how the values of AP were solved at Labor = 2, 3, 5

At labor = 6, use TP = AP x Labor = 110 x 6 = 660

At Labor = 4, you notice that MP is given. MP = change in TP / change in labor, so 110 = TP(4) - TP(3) / 4 - 3 ==> 110 = TP(4) - 450 / 1 ==> TP(4) = 110 + 450 = 560 bicycles

To solve the blanks in MP column, ...

#### Solution Summary

Application of formulas, graphing, and explaining the relationships between the resulting production curves and between the cost curves.