Check Your Understanding

1. Question

   Bernie’s ice-making company produces ice cubes using a 10-ton machine and electricity (along with water, which we will ignore as an input for simplicity). The quantity of output, measured in pounds of ice, is given in the table below.

   Quantity of electricity (kilowatts)	Quantity of ice (pounds)
   0	0
   1	1,000
   2	1,800
   3	2,400
   4	2,800

   1. What is the fixed input? What is the variable input?

      The fi xed input is the 10-ton machine and the variable input is electricity.

   2. Construct a table showing the marginal product of the variable input. Does it show diminishing returns?

      As you can see from the declining numbers in the third column of the accompanying table, electricity does indeed exhibit diminishing returns: the marginal product of each additional kilowatt of electricity is less than that of the previous kilowatt:

      Quantity of electricity (kilowatts)	Quantity of ice (pounds)	Marginal product of electricity (pounds per kilowatt)
      0	0
      1	1,000	1,000
      2	1,800	800
      3	2,400	600
      4	2,800	400

   3. Suppose a 50% increase in the size of the fixed input increases output by 100% for any given amount of the variable input. Construct a table showing the quantity of output and the marginal product in this case.

      A 50% increase in the size of the fi xed input means that Bernie now has a 15-ton machine. Since it generates a 100% increase in output for any given amount of electricity, the quantity of output and the marginal product are now as shown in the accompanying table:

      Quantity of electricity (kilowatts)	Quantity of ice (pounds)	Marginal product of electricity (pounds per kilowatt)
      0	0
      1	2,000	2,000
      2	3,600	1,600
      3	4,800	1,200
      4	5,600	800