PROBLEMS

Question 11.1

Magnificent Blooms is a florist specializing in floral arrangements for weddings, graduations, and other events. The daily marginal product of labour and average product of labour are:

where L is the number of workers used in a day. Each worker is paid $54 per day.

  1. If Magnificent Blooms employs 9 workers, what is the average product of labour? What is the marginal product of labour?

  2. If Magnificent Blooms increases the number of workers employed, what happens to the marginal product of labour and the average product of labour? Explain.

  3. Derive the marginal cost and the average variable cost functions in terms of labour.

  4. If Magnificent Blooms needs to make 18 floral arrangements per day, how many workers will it hire? (Hint: Use Equation 11-2 with q = 18 and solve for L.)

  5. Determine the marginal cost, the average cost, and average variable cost for 18 floral arrangements per day.

Question 11.2

Suppose a firm’s short-run total costs and marginal costs in dollars are given by:

where q is the output per day. The firm has a fixed cost of $40, which is included in the TC equation above.

  1. Determine this firm’s average variable cost and average total cost in terms of q.

  2. Draw a rough sketch of this firm’s average total cost, average variable cost, and marginal cost curves. Put the quantity of output on the horizontal axis and the cost on the vertical axis.

  3. Determine the level of output where average total cost is at a minimum. At this level of output, what do average total cost and marginal cost equal? Is this surprising? Explain why or why not.

  4. Determine the level of output where average variable cost is at a minimum. At this level of output, what do average variable cost and marginal equal?