ECONOMICS 1010 B
Fall 2006
THIRD EXCEL EXERCISE
PRODUCTION and COST CURVES
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”. These are bushels of corn.
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). Use Inputs (N, Column A) as the X-axis; use
output (TP, Column B) as the Y-axis.
6. Create a second Chart with two graphs: one of MPP, one of APP. Use Inputs (N, Column A) as the X-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. USE ONLY ROWS 3-22! Print these Charts.
Now use the Production function to get the cost functions.
7. 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.
8. Put Total Fixed Costs in Column F. In F1 type “TFC”. In F2 type “4000”. Copy F2 and Paste it to F3:F22.
9. Now Total (Total) Costs: in G1 type “TTC”. IN G2 type “=E2+F2”. Copy G2 and Paste it to G3:G22.
10. 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.
11. Compute the Marginal Cost curve. In H1 type “MC”. Leave H2 blank, since Marginal is undefined here.
In H3 type “=(G3-G2)/(B3-B2)” Since Marginal means per unit of output, you have to divide the change in
Costs by change in bushels of corn. 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.)
12. 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.
13. 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 three decimal places. (Use the decrease decimal box in the
“formatting status” line to reduce to two decimals.)
NOTE ALSO: The only thing you added to the production function to get the variable cost curves was the
wage, or the price of the variable input. The cost curves ARE the production function, but inverted!
14. Now create a Chart with three graphs (series) of the three cost curves. For all three graphs use Output
(Q: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 the third graph use Average Total
Cost – Column J – as the Y-axis. For these to work well, use only rows 7:20! Save this Chart as Chart 4.
Last you’ll look at the profit-maximizing rule.
15. First, the price of the output is $1.00 per unit. In K1 type “P=MR=1.00”. In K2 type “1”. Copy K2 and
Paste it to K3:K21. In L1 type “TR: 1.00”. In L2 type “=B2*K2”. Copy L2 and Paste it to L3:L21. In M1
type “pi: 1.00” (Profit is, but Greek is extra work in EXCEL). In M2 type “=L2-G2”. Copy M2 and
Paste it to M3:M21.
16. Second, the price of the output is $1.60 per unit. In N1 type “P=MR=1.60” In N2 type “1.6”. Copy N2
and Paste it to N3:N21. In O1 type “TR: 1.60”. In O2 type “=B2*N2”. Copy O2 and Paste it to O3:O21.
In P1 type “pi: 1.60”. In P2 type “=O2-G2”. Copy P2 and Paste it to P3:P21.
17. Third, the price of the output is $2.00 per unit. In Q1 type “P=MR=2.00” In Q2 type “2”. Copy Q2 and
Paste it to Q3:Q21. In R1 type “TR: 2.00”. In R2 type “=B2*Q2”. Copy R2 and Paste it to R3:R21. In S1
type “pi: 2.00”. In S2 type “=R2-G2”. Copy S2 and Paste it to S3:S21.
18. Now go back to Chart 4 and add the MR=1.60 curve. Use Column B as the X-axis, and Column N as the Yaxis. You must use only rows 7:20! Print this Chart and the SpreadSheet.
NOTE: You already have MR=1 and MR=2 because those are automatically put into the Chart as Gridlines.
So you now have three Marginal Revenue curves on Chart 4.
ECONOMICS 1010 B
Fall 2006
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, Wednesday, October 25.
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?_________ Circle this point on your SpreadSheet and
Chart 4. How does that compare with where APP begins to fall?___________________________
3. At what level of output does ATC begin to rise?_________ Circle this point on your SpreadSheet Chart 4.
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. 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 Chart 4. 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 Chart 4. 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 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