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Name ___________________________________________ Block _______ Date _______ Team ______________ The Links Workshop AP Microeconomics The Links Workshop – Instructions In this experiment we will be producing links. We will have 3-4 teams. Each team will begin with one person working at the production factory. Each factory has the following resources: one desk, one chair, a stack of paper, one pair of scissors, and one tape dispenser. Each round of production will last 45 seconds and have the goal of making the most links possible and connecting these together into one, cohesive chain. If a link is incomplete or not attached to the chain, it cannot be part of the total and must be discarded before the next round. At the start of each round, another worker but not another desk, chair, pair of scissors, or tape dispenser. However, if paper or tape runs low, it will be replenished. Select students will serve as supervisors to assure quality control, replenish supplies, and assist with counting links. Record your production values each round for your team in the table below. Workers 0 Total Product Marginal Product 1 2 3 4 5 6 7 1 1) Note your production values from your team (or those given to you by Mr. Mullooly): Workers 0 Total Product - Marginal Product - 1 4 4 2 10 6 3 14 4 4 17 3 5 19 2 6 20 1 7 2) TOTAL PRODUCTION FUNCTION: Graph your total product and marginal product per worker below: Total product Marginal product of labor Q Workers Q Workers 1) What is the relationship between the total product and the marginal product? 2) What inputs were fixed and what inputs were variable in the production of links? 3) When did diminishing marginal returns set in? (when production increased less despite adding another worker) 4) What do you think would happen to marginal product if we continued to add additional workers? Do you think total product could ever fall? What would have to be true about marginal product to make total product fall? 2 5) Now let’s figure out our costs. Rent for the “factory” (desk) and “machines” (scissors + tape dispenser) to produce links costs $15 per round. Additionally each worker costs $10.00 per round. For simplicity’s sake, let’s assume labor is the only variable cost, and we will ignore paper and tape costs for now. Enter the product data and costs in the chart below:: Round 0 Total Product 0 Total Fixed Cost (TFC) 15 Total Variable Cost (TVC) 0 Average Variable Costs (AVC) Total Cost (TC) 15 Average Total Costs (ATC) Marginal Cost (MC) (note: MC occurs between rounds) - 1 2 3 4 5 6 7 6) On the graph below, plot the TFC, TVC, and TC figures from the data table above. $ Q (total product) 3 7) How are the cost curves related? How does total cost relate to total variable and total fixed cost? What about average costs? 8) Suppose that links each sell for $5.00. How do you determine your total revenue? 9) How do you determine whether you have a profit or a loss from selling links? 10) Complete the following table: Round 0 1 2 3 4 5 6 7 Product 0 Total Revenue 0 Total Cost 15 Profit/Loss -15 11) If you could produce any of the quantities shown in the table above, which quantity would you choose to produce? Why? 12) Add a total revenue curve to the graph from question 6. 13) What does the vertical distance between total revenue and total cost represent? 14) At what quantity of links is the distance between TR and TC greatest? 15) What is another name for the rate at which TC is changing? 16) What rules of production do you think are most important to consider when running your own business? 17) What information regarding analysis of total costs do you think is most important when running your own business? 4 Now let’s turn our attention to average costs Average Costs Graph: Graph your Average Fixed Costs, Average Variable Costs, Average Total Costs and Marginal Costs below: Costs Total Product 18) At what quantity are your average costs the lowest? 19) At what quantity are you earning the most profits? Shade in the area of profit on the graph above 20) What do you notice about the shape of marginal cost curve? 21) What information regarding analysis of average and marginal costs do you think is most important when running your own business? 5