Chapter 11, Problem 8P

To determine

Concept Introduction:

Marginal Product of Labor: It refers to the additional units of output, which is produced by employing an additional unit of labor in the current labor force.

Here,

• is the change in quantity.
  
• is the change in labor.
  
• is the marginal product of labor.
  

Marginal Cost (MC): It refers to the rate by which the total cost of the produced good changes when the production increases by a single unit. As the fixed cost is constant irrespective of production, so the marginal cost depends on the variable cost only in the short run. Marginal cost is calculated as follows:

Here,

• is the marginal cost.
  
• is the change in total cost
  
• is the change in quantity.
  

Fixed cost: It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of an increase or decrease in output.

Marginal Cost: It refers to the additional cost from an additional unit of output. It is generally the additional variable cost.

Here,

• MC is the marginal cost.
• is the change in total cost
  
• is the change in quantity.
  

Average Total Cost: It is also referred as the cost of a single unit, it includes the overall cost, that is the variable cost as well as the fixed cost. A firm should always maintain the price of a product above the ATC, otherwise it will result in loss for the firm. The formula for ATC is: