Es-Pa 120 Tutorial Sheet 5

THE COPPERBELT UNIVERSITY
School of Humanities and Social Sciences

Department of Economics
ES/PA 120: Introduction to Economics/Principles of Economics
Tutorial Sheet 5: The Theory of Production and Costs
1. You are given the following total product schedule (see Table 1 below) where the variable
input; labour (L) is measured in number of hours.
Table 1: Total Product
Labour hours Total Product Marginal Product Average Product
employed (L)
0 0
1 20
2 44
3 66
4 86
5 102
6 112
7 112
8 100
9 80
a) Determine the marginal and average product.

b) Draw the total product, average product and marginal product in one graph.
c) Use the graph to show the three stages of production.
d) Does this data conform to the law of diminishing marginal returns? briefly explain.
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2. You are given the following production function that uses labour as the only input in
production;
𝑄 = 60,000𝑙 2 − 1000𝑙 3
a) Find the marginal product of labour function (MPL).
b) What is the value of labour when total output is at its maximum and what does it
imply?
c) What is the value of labour when MPL is at its maximum?
d) Find the average product of labour (APL).
e) What is the value of labour when APL is at maximum?
f) What is the value of labour where the APL and MPL are equal?
g) What is the value of the APL and MPL when APL is at maximum?
3. Suppose a firm has a production as follows;
𝑄 = 3𝑂𝐿2 − 𝐿3
Find the:
a) Marginal and average product functions.

b) Amount of labour required to maximize total output.
c) Quantity of labour where marginal product is maximum.
d) Amount of labour where average product is maximum.
e) Number of units of labour where average and marginal product is equal.
f) What is the value of the APL and MPL when APL is at maximum?
4. Suppose the hourly output of chicken pieces at Fountain Restaurant is given by;
𝑄 = 20√𝐾𝐿
where 𝐾 is the number of braai stands used and 𝐿 is the labour employed to braai the
chicken pieces.
a) Graph the 𝑄 = 2000 isoquant.
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b) What is the approximate value of the MRTS when 𝐾 = 25 and 𝐿 = 400?
c) What is the approximate value of the MRTS when 𝐾 = 50 and 𝐿 = 200?
d) What is the approximate value of the MRTS when 𝐾 = 100 and 𝐿 = 100?
e) What is the approximate value of the MRTS when 𝐾 = 200 and 𝐿 = 50?
f) From your observations in b) to e), what would you comment about your results?
g) Suppose there was technological progress, what is expected to happen to the
isoquant? and what does this imply? Kindly illustrate on a separate graph.
5. The Cobb Douglas production function is used widely in economic research, it is given as
𝑄 = 𝐾 𝛼 𝐿𝛽 where 0 ≤ 𝛼, 𝛽 ≤ 1. Present the following information on different isoquants,
indicating the type of returns to scale exhibited and interpret what each means.
a) If 𝛼 + 𝛽 = 1, a doubling of 𝐾 and 𝐿 will double 𝑄.
b) If 𝛼 + 𝛽 < 1, a doubling of 𝐾 and 𝐿 will less than double 𝑄.
c) If 𝛼 + 𝛽 > 1, a doubling of 𝐾 and 𝐿 will more than double 𝑄.
6. Suppose you are given the input bundles along the isoquant 𝑄 in Table 2 below. You are
also told that the price of capital is 𝐾60 and that of labour is 𝐾5.
Table 2: Input Bundles
Input bundles Capital, Labour combinations
A 1, 100
B 2, 70
C 3, 45
D 4, 25
E 5, 10
F 6, 0
3
a) Calculate the cost minimizing bundle.
b) Present the information above on a diagram showing the isocost, isoquant and the
point of tangency.
c) You are informed that the price of capital has now increased to 𝐾80 and that of labour
has remained 𝐾5. Calculate the new cost minimizing bundle.
7. Differentiate economies of scale from diseconomies of scale.
8. A firm’s cost of producing maize is presented in table 3 below.
Table 3: Total Cost for Maize Production
Output Total Total Total
fixed Variable Cost
Cost Cost
0 0 25
4 50
10 50
13 100
15 100
16 150
a) Fill in the blank spaces in table 3.
b) Draw the short-run total cost functions in one graph.
c) Determine the short run marginal cost, average fixed cost, average variable cost and
average total cost at each level of output.
d) Draw the short-run cost functions obtained in c) in one diagram.
e) Use the results in c) and d) to explain the key relationships among these short-run
costs.
4
9. You are told that a firm has a fixed production cost of 𝐾2, 000 and a constant marginal
cost of production of 500 per unit produced. Determine the following cost functions for
the firm:
a) Total cost.
b) Average cost.
c) Average variable cost.
d) Average fixed cost.
e) Explain what happens to the average total cost as output increases.
10. You are given the following total cost function;

𝑇𝐶 = 1⁄5 𝑄 3 − 1⁄2 𝑄 2 + 2𝑄 + 8
Find:
a) Total fixed and average fixed costs.
b) Total variable and average variable costs.
c) Average total costs.
d) Marginal costs.
e) The level of output at which average variable cost is minimum.
f) The level of output at which marginal cost is minimum.
g) Show that the average total cost is the sum of the average variable cost and average
fixed cost.

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THE COPPERBELT UNIVERSITY

School of Humanities and Social Sciences

a) Determine the marginal and average product.

3. Suppose a firm has a production as follows;

a) Marginal and average product functions.

10. You are given the following total cost function;

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