Case Study 3 (13 Marks) Read the case study given below and answer the questions that follow. Examples are to be provided in places where possible. Vlad's Sundae Fundae is a small shop that sells cones of ice-cream in a country side area. Vlad owns a shop, three ice-cream machines. His other inputs are refrigerators, ice-cream mix, sprinkle toppings, and workers. He estimates that his daily production function when he varies the number of workers employed (and at the same time, of course, ice-cream mix, and so on) is as shown in the accompanying table. Quantity of Labour (workers) Quantity of Ice-Cream (cones) 0 0 1 100 2 190 3 260 4 290 5 310 6 320

a) Calculate the Marginal Product (MP) of all the workers employed by Vlad. (3 marks)

b) Explain why does marginal product decline as the number of workers increases? (2 marks)

c) Vlad pays each of his workers $80 per day. The cost of his other variable inputs is $0.50 per cone of ice-cream. His fixed cost is $100 per day. Calculate Vlad's variable cost and total cost for each level of output. (5 marks)

d) Calculate the average variable cost (AVC), average fixed cost (AFC), and average total cost (ATC) per cone of icecream at Vlad's Sundae Fundae. Round off your answers to two decimal places. (3 marks)