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April 21, 2014

April 21, 2014

Posted by **Dede** on Wednesday, November 3, 2010 at 7:48pm.

a. What is marginal cost?

b. What is average variable cost?

c. How much output is being produced?

d. What is the average total cost?

e. Is average variable cost increasing, constant, or decreasing?

- Managerial Economics -
**Dede**, Wednesday, November 3, 2010 at 7:59pmPlease let me know if I am on the right track?

a) The firm paid the last hired worker $100 and he produced 10 units. So, cost of producing the last unit (MC) is 100/10 = $10

b) The firm hires 10 workers and pays them $100 each, so Total variable costs are 10*100 = 1000. On average, a worker makes 25 units, so total units are 25*30 = 750. So, the average variable cost of producing a unit (AVC) is = 1000/750 = 1.33.

c) 750 from b)

d) Total fixed costs are total variable costs (1000) plus total fixed costs (given at $5000). So, TC = 5000+1000 = 6000. Average total costs = TC/Q = 6000/750 =8.

e) Since the marginal (last) worker added 10 unit and the overall average is 25 units, average variable costs must be rising. If AVC is rising, TVC must also be rising.

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