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Assume that a firm has a plant of fixed size and that it can vary its output only by varying the amount of labour it employs

Economics

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Assume that a firm has a plant of fixed size and that it can vary its output only by varying the amount of labour it employs. The table below shows the relationships among the unit of labour employed (L) and the total product (TP) of the firm.

(i)         Compute the average product of labour (AP) and the marginal product of labour (MP) and enter these figures in the table.                                                                             (1 mark)

(ii)        Assume that labour is the only variable input in the production, the price of labour is $200 per unit and the Fixed cost of the firm is $100. Complete the above table by computing the total fixed cost (TFC), total variable cost (TVC), total cost (TC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC) for each quantity of labour the firm might employ.

(3 marks)

(iii)       Using the output and costs data that you have computed above, sketch and describe the relationship between labour productivity curves and cost curves. What specific law of microeconomics can best explain this relationship? (4 marks)

(iv)       The government is proposing to increase the level of minimum wage rate for workers. If you are the owner of this firm, what would be your concern on the issue.                       (1 mark)

c) Majority of businesses are operating in a monopolistically competitive market. During economic crisis where demand for products sold by monopolistically competitive firms are declining, what two practical actions that businesses can do to maintain their sales? Provide specific examples in your answer.                                                                                  (3 marks)