ECON 101 – Gaudin Your name: ________________________
Assignment 3 - PRODUCTION AND COST
A. Experiment (40 points)
PURPOSE: To better understand how the product and cost relationships that we talk about relate to the real
world. In this experiment you will generate your own short-run production data, and then apply
our production and cost concepts directly to this data.
INPUTS: Capital (paper, work surface, stapler) Capital is a fixed input
Labor (students) Labor is a variable input
OUTPUT: Widgets (fold paper twice then staple it once)
TOTAL COST OF CAPITAL: 50 cents
PRICE OF LABOR : _______ per student per unit of time (unit of time is 30 second production period)
FILL IN THE TABLE WITH THE RESULTS OF THE EXPERIMENT. Express values in CENTS.
Q/L
∆Q/∆L
∆TC/∆Q FC/Q VC/Q TC/Q
K L Q ∆Q APL MPL FC VC TC
∆ TC MC AFC AVC AC
1 0 0 0 XXX XXX 50 XXX XXX XXX XXX XXX
1 1 3 3 50
1 2 6 3 50
1 3 8 2 50
1 4 9 1 50
1 5 9 0 50 XXX
Did the experiment reproduce data consistent with the law of (EVENTUALLY) DIMINISHING RETURNS? ___.
Does diminishing returns mean the last student working is worse at making widgets? _____
What is the key to diminishing returns?
From the table check: when MPL decreases, what happens to MC? ____________
Draw the curves: TP (on first graph) MC, AVC, ATC (on second graph). First (and importantly) figure out the axes!
