Average Costs, Marginal Costs and MPL

Readers Question: If the wage bill per unit of labor (L) is $30 and the cost of capital (K) is $200 in the short run, fill in the BLANKS in the table below.

L     TVC   Q     MPL    APL   AVC    TFC      TC       ATC   MC
0      0           0
1               4
2              10

I don’t want to fill in the answers, but, here are some explanations of what things mean:

• Total Fixed Cost TFC - cost independent of output. In this case I assume it is $200
• Marginal cost MC - the cost of producing an extra unit of output. For example, if the first worker produces 4 units and costs $30. the marginal cost of each unit is $30 / 4 = 7.5
• However, the second worker produces an extra 6 units. Therefore, the marginal cost of the extra six units is $30. Therefore, for each extra unit the cost is $30 / 6 5

• Total variable cost TVC = cost involved in producing more units, which in this case is the cost of employing workers. Therefore, for 2 workers the TVC should be $60
• Marginal Product Labour MPL = This is the extra output generated by an extra worker. Therefore, the marginal product of the first worker will be 4 units. The second worker adds an extra 10-4 units.
• Average Product Labour APL = Total Output / number of workers
• Average Variable Cost AVC = Total variable cost / quantity produced
• Total cost TC = Total variable cost + total fixed cost
• Average Total Cost ATC = Total cost / quantity