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