# Production and Cost Analysis in the Short-Run; Production and Cost Analysis in the Long-Run

It cost a company \$50,000 to set up a chip manufacturing plant. The company pays \$25 per hour for labor which is the variable input. A portion of the company's production schedule is:

Hours of Labor 1000
Number of Chips 200,000

a. Use the information in the above table to calculate th average product (AP) and marginal product (MP)

b. If 200,000 chips are produced, what is this company's total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC)?

c. At the production level of 200,000 chips, is the company's average variable cost decreasing, at a minimum or increasing?

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#### Solution Preview

...VC = \$0.125

a. The Average Product of Labor is the output of an average worker, so it is Q/L, the Marginal Product of Labor is &#61508;Q/&#61508;L

AP = 200,000/1000 = 200.

We do not know the production function and so it is impossible to determine what the Marginal Product of Labour is. The question itself seems to be phrased in such a way as to prevent us from assuming a ...