Module 2 – Case
PRODUCTION AND COST ANALYSIS
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).
To learn how to plot the data in Excel, see https://www.youtube.com/watch?v=B3U9tDcoNeI
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.
