Solutions Economics

Assume that Firm A produces widgets and has one variable input in the short run, labor, and it pays

Question: Assume that Firm A produces widgets and has one variable input in the short run, labor, and it pays its workers $500 per week. All other costs are fixed. Below is shown the total number of widgets produced per week as the number of workers increases.

a. Fill in the table below.

Number of Workers per Week	Total Widgets Produced	MP of Labor	Average Product of Labor	Total Variable Cost	Average Variable Costs	Marginal Cost (per Unit of Output)
0	0
1	240
2	500
3	780
4	1040
5	1260
6	1400
7	1500
8	1550

b. What happens to marginal cost when the marginal product of labor is rising? Falling? What happens to AVC when average product of labor is rising? Falling?

c. What is the firm’s short run supply curve (assuming it is in a competitive industry).

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