Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:# Understanding the Relationship Between Marginal Product and Marginal Cost
## Context
Simone's Burrito Stand is a small restaurant that sells burritos. The business model involves fixed inputs like grills and variable inputs such as labor. The cost of labor is $50 per worker each day, with total fixed costs of $50 per day. Below is a breakdown of the labor input and total cost schedule, along with the objectives of calculating marginal product and marginal cost.
## Table Overview
The table in the image includes several columns:
- **Labor Input (Number of Workers):** Ranges from 1 to 5.
- **Total Output (Burritos per day):** Varies based on the number of workers.
- **Marginal Product (MP):** Calculated by the change in total output with the addition of one more worker.
- **Total Cost (Dollars per day):** Fixed cost plus variable cost (number of workers multiplied by $50).
- **Marginal Cost (MC):** Calculated by the change in total cost divided by the change in quantity of output.
### Example Calculation
- To calculate the **Marginal Product**, subtract the total output of the preceding labor input from the total output of the current labor input.
- To calculate the **Marginal Cost**, divide the increase in total cost by the increase in output (marginal product).
## Exercises
Fill in the blanks to complete the Marginal Product and Marginal Cost columns, and analyze the prompts regarding marginal returns to labor and marginal cost trends.
### Questions
1. When hiring its third worker, Simone's Burrito Stand faces ________ marginal returns to labor.
2. Over the range of workers for which the marginal product is decreasing, Simone's Burrito Stand faces ________ marginal cost.
### Conclusion
Understanding these concepts helps in optimizing production and cost management in business settings.
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Transcribed Image Text:Use the following data to answer the question below.
Malaysia data:
The annual growth rate of capital stock = 7%
The annual growth rate of labor force = 2%
The labor's share of income = 0.60
The capital's share of income = 0.40
The annual growth rate of output = 5%
From the above data and the growth accounting, what is the annual growth rate of
Malaysia's total factor productivity?
er
1%
ed
9%
10%
-1%
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