Production Function Problem Set

Economics




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, 2


Question 1: Production Function Problem Set

1. To calculate the marginal product of labor (MPL), subtract the total product of the

previous period from the total product of the current period.

2. Fixed costs do not change throughout all the periods

3. To calculate the variable costs (VC), subtract the total costs (TC) from the fixed costs

(FC). For example, for the third period (L = 2), the VC is 350 - 200 = 150.

4. Average fixed costs:

Average fixed cost (AFC) = TFC / Q

Where:

TFC = total fixed costs, which are costs that do not change with the level of

production or sales. Examples of fixed costs include rent, salaries, and insurance.

Q = the level of output or production

5. Average variable costs:

Average variable costs (AVC) = TVC / Q



Where:



TVC = total variable costs, which are costs that change in direct proportion to

the level of production or sales. These costs vary with the level of output, and

are directly traceable to a specific product or service.