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# 8.11: Exercises for Chapter 8

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EXERCISE 8.1

The relationship between output Q and the single variable input L is given by the form . Capital is fixed. This relationship is given in the table below for a range of L values.

 L 1 2 3 4 5 6 7 8 9 10 11 12 Q 5 7.07 8.66 10 11.18 12.25 13.23 14.14 15 15.81 16.58 17.32
1. Add a row to this table and compute the MP.

2. Draw the total product (TP) curve to scale, either on graph paper or in a spreadsheet.

3. Inspect your graph to see if it displays diminishing MP.

EXERCISE 8.2

The TP for different output levels for Primitive Products is given in the table below.

 Q 1 6 12 20 30 42 53 60 66 70 L 1 2 3 4 5 6 7 8 9 10
1. Graph the TP curve to scale.

2. Add a row to the table and enter the values of the MP of labour. Graph this in a separate diagram.

3. Add a further row and compute the AP of labour. Add it to the graph containing the MP of labour.

4. By inspecting the AP and MP graph, can you tell if you have drawn the curves correctly? How?

EXERCISE 8.3

A short-run relationship between output and total cost is given in the table below.

 Output 0 1 2 3 4 5 6 7 8 9 Total Cost 12 27 40 51 61 70 80 91 104 120
1. What is the total fixed cost of production in this example?

2. Add four rows to the table and compute the TVC, AFC, AVC and ATC values for each level of output.

3. Add one more row and compute the MC of producing additional output levels.

4. Graph the MC and AC curves using the information you have developed.

EXERCISE 8.4

Consider the long-run total cost structure for the two firms A and B below.

 Output 1 2 3 4 5 6 7 Total cost A 40 52 65 80 97 119 144 Total cost B 30 40 50 60 70 80 90
1. Compute the long-run ATC curve for each firm.

2. Plot these curves and examine the type of scale economies each firm experiences at different output levels.

EXERCISE 8.5

Use the data in Exercise 8.4,

1. Calculate the long-run MC at each level of output for the two firms.

2. Verify in a graph that these LMC values are consistent with the LAC values.

EXERCISE 8.6

Optional: Suppose you are told that a firm of interest has a long-run average total cost that is defined by the relationship LATC=4+48/q.

1. In a table, compute the LATC for output values ranging from . Plot the resulting LATC curve.

2. What kind of returns to scale does this firm never experience?

3. By examining your graph, what will be the numerical value of the LATC as output becomes very large?

4. Can you guess what the form of the long-run MC curve is?

This page titled 8.11: Exercises for Chapter 8 is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Douglas Curtis and Ian Irvine (Lyryx) via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request.

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