ECONOMICS 1010A
Sfummer I 2005
SECOND EXCEL EXERCISE
PRODUCTION, COST CURVES, AND SUPPLY
In this Exercise you enter a production function, and then “invert” it to get a cost function. The production
process is a small farm, employing women-weeks of labour (variable input) and producing corn.
1. First the Production Function. Put Inputs in first. In A1 type “N: wks”. In A2 type “0” (zero). In A3 type
“=A2+1”. Copy A3 and Paste it to A4:A22. A22 should be “20”.
2. Now Total Product. In B1 type “Q: TP”. In B2 type “0” (zero). In B3 type “=B2+A3*100”. Copy B3 and
Paste it to B4:B12. B12 should be “5500”. In B13 type “=B12+100*(20-A13)” Copy B13 and Paste it to
B14:B22. B22 should be “10000”.
3. Compute Marginal Product. In C1 type “MPP”. Since Marginal Product is undefined when Inputs and
Output are zero, leave C2 blank. In C3 type “=B3-B2”. Copy C3 and Paste it to C4:C22. If you’ve done
everything up to now correctly, C22 will be “0” (zero).
4. Compute Average Product. In D1 type “APP”. Since Average Product is undefined when Inputs are zero,
leave D2 blank. In D3 type “=B3/A3”. Copy D3 and Paste it to D4:D22. D22 should be “500”.
5. Create a Chart with a graph of your Production Function (TP). Create a second Chart with two graphs: one
of MPP, one of APP. For all three graphs use Inputs (N, Column A) as the X-axis. For the Production
Function, use output (TP, Column B) as the Y-axis. For Marginal Physical Product, use MPP (Column C)
as the Y-axis. For Average Physical Product, use APP (Column D) as the Y-axis. Print these Charts.
Now use the Production function to get the cost functions.
6. Get a Total Variable Cost function, which goes in Column E. To do this you need the price of the Variable
Inputs. Here we use $800 per week. In E1 type “TVC”. In E2 type “=800*A2” Copy E2 and Paste it to
E3:E22.
7. Put Total Fixed Costs in Column F. In F1 type “TFC”. In F2 type “4000”. Copy F2 and Paste it to F3:F22.
8. Now Total (Total) Costs: in G1 type “TTC”. IN G2 type “=E2+F2”. Copy G2 and Paste it to G3:G22.
9. Create a Chart with graphs of the three cost functions. For all three graphs use output, (TP, Column B) as
the X-axis. For the first graph use Total Variable Costs (Column E) as the Y-axis. For the second graph use
Total Fixed Costs – Column F – as the Y-axis. For the third graph use Total (Total) Costs (Column G) as
the Y-axis. Print this Chart.
10. Compute the Marginal Cost curve. In H1 type “MC”. Leave H2 blank, since Marginal is undefined here.
In H3 type “=(G3-G2)/(B3-B2)” Copy H3 and Paste it to H4:H21. (If you do Paste to H22, you will find it
undefined because you’ll be trying to divide by zero.)
11. Now compute the Average Variable Cost curve. In I1 type “AVC”. Leave I2 blank. In I3 type “=E3/B3”.
Copy I3 and Paste it to I4:I21.
12. Finally the Average Total Cost curve. In J1 type “ATC”. Leave J2 blank. In J3 type “=G3/B3”. Copy J3
and Paste it to J4:J21.
NOTE: You should have MC, AVC and ATC to two decimal places. Exactly two will work best, and this
gives dollars and cents. (Use the decrease decimal box in the “formatting status” line to reduce to two
decimals.)
13. Now create a Chart with three graphs (series) of the three cost curves. For all three graphs use output (TP,
Column B) as the X-axis. For the first graph use Marginal cost (Column H) as the Y-axis. For the second
graph use Average Variable Cost (Column I) as the Y-axis. For these to work properly, use only rows 3:21!
For the third graph use Average Total Cost – Column J – as the Y-axis. For the third graph, use only rows
6:21! Print this Chart and the SpreadSheet. Save this Chart!
Last you’ll look at the profit-maximizing rule. But first, clean up the spreadsheet to make this easier. Delete
Columns C and D (Click on “Edit”, then on “Delete”. A menu appears, click on “entire column”.) This shifts
what’s in Columns E, F, and G so that they become C, D and E. Column E is now TTC.
14. First, the price of the output is $1.00 per unit. In I1 type “P=MR=1.00”. In I2 type “1”. Copy I2 and Paste
it to I3:I21. In J1 type “TR: 1.00”. In J2 type “=B2*I2”. Copy J2 and Paste it to J3:J21. In K1 type “pi:
1.00” (Profit is, but Greek is extra work in EXCEL). In K2 type “=J2-E2”. Copy K2 and Paste it to
K3:K21.
15. Second, the price of the output is $1.60 per unit. In L1 type “P=MR=1.60” In L2 type “1.6”. Copy L2 and
Paste it to L3:L21. In M1 type “TR: 1.60”. In M2 type “=B2*L2”. Copy M2 and Paste it to M3:M21. In
N1 type “pi: 1.60”. In N2 type “=M2-E2”. Copy N2 and Paste it to N3:N21.
16. Third, the price of the output is $2.00 per unit. In O1 type “P=MR=2.00” In O2 type “2”. Copy O2 and
Paste it to O3:O21. In P1 type “TR: 2.00”. In P2 type “=B2*O2”. Copy P2 and Paste it to P3:P21. In Q1
type “pi: 2.00”. In Q2 type “=P2-E2”. Copy Q2 and Paste it to Q3:Q21.
17. Finally, go back to your fourth Chart: Marginal and Average Costs. Add three graphs. For all three graphs
the X-axis is output (TP, Column B). Use only B3:B21! For the first new graph use P=MR=1.00 (Column
I) as the Y-axis. (Remember that P is AR.) For the sixth graph use P=MR=1.60 (Column L) as the Y-axis.
And for the third new graph, use P=MR=2.00 (Column O) as the Y-axis. Use only Rows 3:21! Print this
Chart and your SpreadSheet.
ECONOMICS 1010
Summer Session I 2005
THIRD EXCEL EXERCISE ANSWER SHEET
You are to turn in this sheet, with the numbers you put in, the five Charts and the two Spreadsheets. These are
due at noon, Friday, May 27.
NAME_________________________________
STUDENT NUMBER_____________________
1. At what level of output does MC begin to rise?__________ Circle this point on your SpreadSheet. How
does that compare with where MPP begins to fall?________________________________
2. At what level of output does AVC begin to rise?_________
your
fourth
Chart.
How
does
that
Circle this point on your SpreadSheet and
compare
with
where
APP
begins
to
fall?___________________________
3. At what level of output does ATC begin to rise?_________ Circle this point on your SpreadSheet and your
fourth Chart.
4. Given a Price of the output of 1.00, what is profit maximizing output?__________ Circle this point in the
Profit Column of your SpreadSheet and on your fifth Chart. What are Total Costs__________, Total
Revenues__________, and Profits________ at this level of output? (Denote losses with a minus sign.)
What
are
Average
Total
Costs________,
Average
Variable
Costs________,
and
Average
Revenue________ at this level of output?
5. Given a Price of the output of 1.60, what is profit maximizing output?__________ Circle this point in the
Profit Column of your SpreadSheet and on your fifth Chart. What are Total Costs_________, Total
Revenues__________, and Profits_________ at this level of output? (Denote losses with a minus sign.)
What are Average Total Costs_______, Average Variable Costs________, and Average Revenue________
at this level of output?
6. Given a Price of the output of 2.00, what is profit maximizing output?__________ Circle this point in the
Profit Column of your SpreadSheet and on your fifth Chart. What are Total Costs_________, Total
Revenues__________, and Profits__________ at this level of output? (Denote losses with a minus sign.)
What are Average Total Costs_______, Average Variable Costs_______, and Average Revenue_______ at
this level of output?
7. Fill in the table below to get the individual farm’s supply curve and and the industry supply curve. The
corn industry is 1000 identical corn farms.
Price of corn
$/bushel
0.90
1.00
1.14
1.33
1.78
1.60
2.00
2.67
4.00
8.00
Single farm
Quantity Supplied
Corn Industry
Quantity Supplied