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Marginal Product and Average Product

If a company's only variable input is labor and 50 workers are used, the average product of labor is 50, the marginal product of labor is 75, the wage rate is $80 and the total cost of fixed input is $500, which is true?

Average variable cost is rising
marginal cost is rising
average variable is lowering
you can not figure without more information

Let say a company is currently using 50 workers, has 30 sewing machines to produce 5000 shirts a day, the wage rate is $200 and the rental rate of the sewing machines is $1000. At these input levels another employee adds 200 shirts, while another sewing machine adds 500 shirts. If the company uses 35 sewers and 31 sewing machines instead, then what will happen?

Costs be unchanged & output decreases by 500 units
Costs be unchanged & output increases by 300 units
Costs be unchanged & output increases by 500 units
Output will be unchanged and costs will decrease by $800
none of these

When "economies of mass production exist does long-run average cost decrease as output increases or is it total cost decreases as output increases? Please explain.

Solution Preview

1. As the average product of labor is 50, the marginal product of labor is 75 it means that average variable cost is ...

Solution Summary

This discusses the concept of marginal product, long run average cost and average product.

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