Economics
Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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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.

    Economics, Chapter 11, Problem 8P , additional homework tip  1

Here,

  • Economics, Chapter 11, Problem 8P , additional homework tip  2is the change in quantity.
  • Economics, Chapter 11, Problem 8P , additional homework tip  3is the change in labor.
  • Economics, Chapter 11, Problem 8P , additional homework tip  4is 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:

    Economics, Chapter 11, Problem 8P , additional homework tip  5

Here,

  • Economics, Chapter 11, Problem 8P , additional homework tip  6is the marginal cost.
  • Economics, Chapter 11, Problem 8P , additional homework tip  7is the change in total cost
  • Economics, Chapter 11, Problem 8P , additional homework tip  8is 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.

    Economics, Chapter 11, Problem 8P , additional homework tip  9

Here,
  • MC is the marginal cost.
  • Economics, Chapter 11, Problem 8P , additional homework tip  10is the change in total cost
  • Economics, Chapter 11, Problem 8P , additional homework tip  11is 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:

    Economics, Chapter 11, Problem 8P , additional homework tip  12

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