Use the given information on a hypothetical short-run production function to answer questions 1 to 4.
Units of Labor/Day 5 6 7 8 9
Units of Output/Day 120 140 155 165 168
The price of labor is $20 per day. Ten units of capital are used each day, regardless of output level. The price of capital is $50 per unit.
Question 1: Calculate the marginal and average variable product of each unit of labor input. Hint: plot your Units of labor and Units of Output vertically.
Question 2: Calculate total, average total, average variable, and marginal costs.
Question 3: Can you tell where diminishing marginal returns sets in?
Question 4: Graph the resulting cost curves.