Al’s Bicycle Town: Production and Costs
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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 Summary
Application of formulas, graphing, and explaining the relationships between the resulting production curves and between the cost curves.
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, ...
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