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ES2555 PROJECT PART 1 (ITT TECH)
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ES2555 Survey of Economics
PROJECT PART 1: APPLICATIONS OF MICROECONOMICS AN
MACROECONOMICS
Ti!"e: Pro#uc!ion ecisions
Suppose you are in charge of a rm that produces skateboards. The
company’s xed inputs include the building and equipment, and the variable
inputs are the raw materials and workers. ou need to determine the best
number of employees to use during each shift. !ocus on the relationship
between the number of workers employed on the assembly line and the
number of skateboards produced per shift.
"utput varies with the number of workers employed as shown in the table
below. #omplete the table by calculating the average product $%&' for each
level of labor and the marginal product $(&' of each additional worker.
To calculate the average product, divide the output number by the labor
number. !or example, with two workers, we have an output of ). *ight
divided by two equals four $)+ - '/ thus, the average output is .
(arginal product is equal to output minus the output for the prior number of
laborers. To calculate the marginal product, subtract the output for the
previous number of workers from the output for the current number ofworkers. !or example, with two workers and an output of ), we have a
marginal product of 0 because ) $the output for workers' minus 1 $the
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output for 2 worker which is the previous number of workers employed'
equals 0.
3s this production function consistent with the law of diminishing marginal
returns4 *xplain.
Fi"" in !$e %"&n':
This production function shows that diminishing marginal product $or
diminishing returns' sets in when the 4thworker is added.
ou will now determine the optimal, or prot5maximi6ing, level of output for a
skateboard5manufacturing rm. our rm’s xed cost is equal to 789 per day.:emember that xed costs are the same at all levels of output. ;ariable costs
depend on how many units of labor you decide to employ. The daily payroll
cost is 79 per worker.
< (ultiply this cost per worker by labor to calculate variable cost.
• %dd xed cost and variable cost to nd total cost.
< #alculate marginal cost by dividing the change in total cost by the change
in output.
< #omplete the missing values in the table.
:emember that output should always be increased as long as marginal
product is rising or marginal cost is falling. "nce marginal cost begins to rise,
re=ecting the law of diminishing returns, output should be increased only if
marginal revenue exceeds marginal cost.
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(arginal revenue is equal to product price if this rm is in a perfectly
competitive market. Assume the marginal revenue and price is both
equal to $25.
Ans(er !$e fo""o(in) *ues!ions:
2. Should output be increased from 20 to >4 That is, should the fourth
worker be hired4 ?se the marginal approach to explain why or why not.
. Should output be increased from > to 4 That is, should the fth worker
be hired4 ?se the marginal approach to explain why or why not.
1. #alculate prot assuming output is 20. Show all the calculation steps.
. #alculate prot assuming output is >. Show all the calculation steps.
0. #alculate prot assuming output is . Show all the calculation steps.
9. %ssuming the rm’s goal is to maximi6e prot, how many workers should
you employ and how much output should be produced each day4