Case Assignment

The following table gives the total weekly output of bicycles at Al’s Bicycle Town. 

Table 1

Labor      Total Product (TP)   Average Product of labor (AP)   Marginal Product of labor (MP)

0               0                                  na                                                     na

1             100                              100                                                   100

2             300                             —–                                                   ___

3             450                             ___                                                    ___

4             ___                             ___                                                    110

5             630                             ___                                                    ___

6             ___                             110                                                    ___

• Complete this table.
• Draw the graphs of the marginal product (MP) and the average product (AP). 

• Where do the AP and MP curve cross? 

The cost of 1 worker is $2000 per month. Total fixed cost is $4000 per month. 

• Complete Table 2 using your answers from Table 1 and by computing total variable cost (TVC) and total cost(TC). 

Table 2

Labor      Total Product (TP)   Total variable cost (TVC)   Total cost (TC)

0               0                                  na                                                  4000

1             100                              2000                                                 ___

2             300                             —–                                                   ___

3             450                             ___                                                    ___

4             ___                             ___                                                    12000

5             630                             ___                                                    ___

6             ___                             12000                                                ___

• Draw the graphs of the TC and TVC curves. What is the relationship between these two curves? 

• Complete Table 3 by using your answers from the previous Tables and calculating the AVC, ATC, and MC. 

Table 3 

 Total Product (TP) Average variable cost (AVC) Average total cost (ATC)   Marginal cost (MC)

               0                                na                                na                                           na

             100                              20                                ___                                          20

             300                             —–                              ___                                         ___

             450                             ___                               ___                                         ___

             ___                             ___                               21.43                                      ___

             630                             ___                                ___                                        ___

             ___                             ___                                ___                                       66.67

• Draw the graphs of the ATC, AVC, and MC curves. What is the relationship between the ATC and AVC curves? Between the MC and AVC curves? 

Suppose that Al discovers new technology that boosts the productivity of his workers, so that more bicycles can be produced than before.

• Complete Table 4, which presents production data with the new technology. 

Table 4 

Labor      Total Product (TP)   Average Product of labor (AP)   Marginal Product of labor (MP)

0               0                                  na                                                     na

1             120                               120                                                   120

2             360                              —–                                                   ___

3             540                              ___                                                    ___

4             672                              ___                                                    ___

5             756                              ___                                                    ___

6             792                              ___                                                    ___

Al’s fixed cost remains at $4000, and he can continue to hire workers at the monthly rate of $2000.

• Use the new technology data to complete Tables 5 and 6. 

Table 5

Labor      Total Product (TP)   Total variable cost (TVC)   Total cost (TC)

0               0                                  na                                                    ___

1             120                              ___                                                    ___

2             360                              —–                                                   ___

3             540                              ___                                                    ___

4             672                              ___                                                    ___

5             756                              ___                                                    ___

6             792                              ___                                                    ___

• Draw the ATC and MC curves you just entered in Table 5.  How do the old and new ATC curves compare? The old and the new MC curves? 

 Table 6

Total Product (TP) Average variable cost (AVC) Average total cost (ATC)   Marginal cost (MC)

               0                                na                                na                                           na

             120                              ___                              ___                                        ___

             360                             —–                              ___                                         ___

             540                             ___                               ___                                         ___

             672                             ___                               ___                                         ___

             756                             ___                                ___                                        ___

             792                            ___                                ___                                         ___

Return to the old technology data. Suppose that the cost of Al’s fixed inputs remains the same at $4000, but the cost of labor rises. Specifically, suppose that a worker now receives $3000 per month.

• Complete Table 7. For the two missing TP copy your answers from Table 1 

Table 7 

Labor      Total Product (TP)   Total variable cost (TVC)   Total cost (TC)

0               0                                  na                                                   4000

1             100                              3000                                                 ___

2             300                             —–                                                   ___

3             450                             ___                                                    ___

4             ___                             ___                                                    16000

5             630                             ___                                                    ___

6             ___                             18000                                                ___

In Table 8 compare the cost before and after the increase 

Table 8

              Before the increase                                            After the increase

TP            ATC         MC                                                   ATC         MC

 0               ___        ___                                                       ___        ___         

100            ___        ___                                                       ___        ___

 300           ___        ___                                                       ___        ___

 450           ___        ___                                                       ___        ___     

 ___           ___        ___                                                       ___        ___  

 630           ___        ___                                                       ___        ___   

  ___          ___        ___                                                       ___        ___

• Last question: how did the rise in variable costs affect the average total cost?  The marginal cost?

Assignment Expectations

In the Module Case Assignment, you are expected to:

• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the Case Assignment questions clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• Provide citations to support your argument and place references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].
• Type and double-space the paper.
• Whenever appropriate, please use Excel to show supporting computations in an appendix, present economic information in tables, and use the data to answer follow-up questions.