Change in Unit of Labour - Essay Example

Topic: ASSIGNMENT a). The marginal product of each unit of labour=change in output Change in a unit of labourUnits of labor Units of total output per day Marginal Product = ∆output/∆input5 1202461402071551581651091681Totals:35 748 units70The marginal product above was computed by finding the change in output and dividing it with change in inputs (capital)1. (b).Total, average and marginal costs= Units of labour Units of total output per day Total cost=VC+ FC ($)Average Cost=TC ÷units of output ( $)MC= Change in TC ÷change in output ($)5 12020(5)+50(10)=60050614020(6)+50(10)=6204.

431715520(7)+50(10)=6404.131.33816520(8)+50(10)=66042916820(9)+50(10)=6804.056.7Totals:35 748 units =$3200$21.61$11.03Price of capital/fixed cost=$50per day Price of labour per day=$201.(c).The graph indicates that the marginal cost curve intersects the average cost curve at lower and higher points as shown above. The two curves intersect at two points namely 4.5 and 5 as shown above.2. P M.

C A.C MR Qty Firm It can be observed that the marginal cost curve intersect the average cost from below as shown in the diagram above. The graph indiindicatescate that the firm could make more and more profits as you move towards the right of the graph, the above situation could occuoccurrred only when there is a single firm in the industry(monopoly firm).

How,eveintersectsr as more firms enter the industry the profits decrease as indicated in the diagram below. M.C Maximum profitsCost &Revenue A.T.C A.V.C M.

R Qty It can be observed that as the number of firms in the market increases, the operating profits for the existing terms decrease. Further, based on the above graph it can be observed that the maximum profits are obtained at a point where the rmsMargithe nal cost curve intersects with the Marginal revenue curve.

In addition, the marginal cost curve intersects the average variable cost curve from below and also interintersectssect the average total cost curve from above as shown in the diagram.3. (a). The price of cotton will decline and theproducersnshort run response of cotton producer will be to reduce the production of cotton as the demand and prices of cotton are low. (b). The long-run response in the market will be an increase in demand and price of cotton as well as a decrease in the supply of cotton. 4. Monopolistic Firm in the Long-run price MC ATC MC=MR D MR Qty The diagram above indicates that, in the long run, an increase in cost for a monopolistic firm causes the market price to be equal to the average total cost whereby marginal cost will be equal to marginal revenue as indicated in the figure above (Salvatore, p.345).5. (a)priceQuantity Total Revenue=PQMarginal Revenue=TR÷QMarginal cost=Change in total cost÷ change in quantity270024024248185021484185018610812501581206501210120050912108-65061484-125031648-18500180-2450(b) Profits= total revenue-total cost =720-100 =$620(c).

Marginal Revenue=Marginal cost =$6(d).Graph of equilibrium price and quantity SupplyEquilibrium Price PE Demand Equilibrium quantity (QE)The graph above indicates the equilibrium price and quantity which is derived at the point where the demand and supply curve intersect.

The equilibrium price is represented above using PE while the equilibrium quantity is represented by point QE as shown above. 6. a). This figure is called production possibility graph b). When labor goes from 30 to 40 is MRTS of capital decreases from 55 to 45. This means that if 10 more units of labor are employed the units of capital employed decrease by 5 units. (c). The Marginal Rate of Technical Substitution of capital decreases by 4 units (from 29 to 25) when labor moves from 60 to 70. (d). The marginal product of capital will be 60 (36÷×15) ÷ 9=607.

The demand for butter will lead to a decrease in the demand for margarine because margarine is an inferior good whose demand decreases as the consumer’s level of income increases. On the contrary, the demand for butter wincreaseases as income increases. 8. The reason why a person's marginal rate of substitution between two goods must equal the ratio of the price of goods is that consumers could trade one good for another at a market price to obtain a higher level of satisfaction. 9. (a). if the marginal cost of production is increasing it tells you that the average variable cost is decreasing.

Units MC AC AVC QTY MCAVC AVC is decreasing AVC is increasing The graph above indicates that the marginal cost curve intersects the average cost curve from below and the average cost at a point higher than that of the average cost curve.

It can be observed that, as the marginal cost increases, the average variable cost decreases (Salvatore, p.225). (b). Units MC AC AVC QTY MC>AVC AVC is decreasing The graph above indicates the relationship between Marginal cost and average variable cost whereby, If the marginal cost of production is greater than the average variable cost it means that average cost is increasing and vice versa(Salvatore, p.225). (c).

The graph indicates that the firm average variable cost curve is U-shaped and it achieves its minimum at a lower than the average total cost curve because the marginal cost curve intersects the average variable cost curve at a point lower than that of the average total cost curve as shown above(Salvatore, p.187).10. (b). Isocost curve Labour 10 8 2 2 4 6 10 Materials The graph indicates that if the cost of raw material rises by 10 units, the unit cost of labor decrease by 10 units. c). If the cost of labor and materials increases by 25 the new cost of labor will be 33 while that of materials will be 29 leading to a decrease in production.