Question

Labor

(workers per day) Total product
(pizzas per day)
0 0
1 2
2 7
3 16
4 24
5 28
Patti's Pizza production function is shown in the above table. Patti rents three ovens for $40 a day each and hires workers at a wage rate of $26 a day. If Patti increases her production of pizzas from 7 to 16 pizzas per day, then her marginal cost is $ ______.

Answer 1

If Patti increases her production of pizzas from 7 to 16 pizzas per day, then her marginal cost is $2.89.

Marginal cost refers to the additional cost incurred by producing one more unit of a good or service.

Marginal cost = Δ in Total cost (TC) / Δ in Output (Q). Note that TC = TFC + TVC where TFC is constant at all output levels.

When Output is 7, L = 2. So, the total cost is:

= $40 + ($26 * 2)

= $40 + 52

= $92

When Output is 16, L = 3. So, the total cost is:

= $40 + ($26 * 3)

= $40 + 78

= $118.

The Marginal cost = Δ in Total cost (TC) / Δ in Output (Q).

MC = 118 - 92 / 16 - 7

MC = 26 / 9

MC = 2.88888888889

MC = 2.89.