Q1. Use the following information on a hypothetical short-run production function to answer questions a-c.
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.
a. Calculate the marginal and average variable product of each unit of labor input.
b. Calculate total, average total, average variable, and marginal costs.
c. Can you tell where diminishing marginal returns sets in?
Q2. Explain the difference between the short run and the long run as it relates to the firm's production function. Why is this distinction important to a firm''s manager?
Q3. From the manager's perspective it is important to treat implicit costs as explicit in order to make sound strategic decisions. Explain why giving some examples.