Posted by eStone on Sunday, March 29, 2009 at 5:47pm.
Suppose that a firm is currently employing 30 workers, the only variable input, at a wage rate of $60. The average product of labor is 30, the last worker added 12 units to total output, and total fixed cost is: $3,600.
a. What is marginal cost?
b. What is average variable cost?
c. How much output is being produced?
d. What is average total cost?
e. Is average variable cost increasing, decreasing or constant? What about average total cost>
Responses
* Economics - economyst, Monday, March 30, 2009 at 9:42am
Do a little research and then take a shot. What do you think?
Hint. All of these questions need simple algebra.
Repost, and I or others will check your answers.
Here's my guess:
a. Marginal Cost
- change in TC/change in Q
so... 3600/12 = 300??
b. Average variable cost
- TVC/Q
so... i'm not sure how to find TVC, is it 20*60 = 1200, which would then mean 1200/600 = 2? But i'm not sure if 2 is too low for AVC?
c. Output = 20*30 = 600
d. ATC
- TC/Q
I'm not sure how to find total cost, but can I just use TFC and do 3,600/600 = 6? (then again that might be a little low for ATC :(
e. AVC would be increasing if each worker adds more output? and ATC would be inceasing as well?
Sigh, I hope my answers don't make me look stupid, I feel way over my head here, but thanks for the help in advance.
a. 60
b. 60
c. 30*30+12=912
d. atc= (3600+60*30)/30=180
e. increasing, decreasing
Dont look at Robert's answers. He got them all wrong.
a) The firm paid the last hired worker $60 and he produced 12 units. So, cost of producing the last unit (MC) is 60/12 = $5
b) The firm hires 30 workers and pays them $60 each, so Total variable costs are 30*60 = 1800. On average, a worker makes 30 units, so total units are 30*30 = 900. Soooo, the average variable cost of producing a unit (AVC) is = 1800/900 = 2.
c) 900 from b)
d) Total fixed costs are total variable costs (1800) plus total fixed costs (given at $3600). So, TC = 3600+1800 = 5400. Average total costs = TC/Q = 5400/900 = 6.
e) Since the marginal (last) worker added 12 unit and the overall average is 30 units, average variable costs must be rising. If AVC is rising, TVC must also be rising.
Wow! Economyst, thank you for explaining it! Now that I read and look at the numbers it makes more sense, I definitely have clarification. You made it seem so simple, I guess I just need to calm down and do what the equations say. I appreciate it, this is going to help me study a lot for my exam.
a. SMC= w/MP = 60/12 = $5
b. AVC= w/AP = 60/30 = 2
c. OUTPUT (Q)= AP*L = 30*20 = 600
d. ATC= AFC + AVC = (3600/600) + 2 = 8
To find the answers to the given questions, we need to apply basic economic principles and use simple algebraic calculations. Let's break it down step by step:
a. Marginal cost is the change in total cost (TC) divided by the change in quantity (Q). In this case, the last worker added 12 units to the total output, so the change in quantity is 12. The total fixed cost (TFC) is given as $3,600. Therefore, the marginal cost (MC) would be TC/Q, which is 3600/12 = $300.
b. Average variable cost (AVC) is the total variable cost (TVC) divided by the quantity (Q). However, the TVC is not provided directly. We can calculate it by subtracting the TFC from the TC. In this case, the TFC is $3,600. So the TVC would be TC - TFC, which is TC - 3600. Unfortunately, the total cost (TC) is also not given, so we can't determine the AVC with the information provided.
c. The output is the product of the average product of labor (APL) and the number of workers (L). The APL is given as 30, and the number of workers is 30. Therefore, the output would be 30*30 = 900.
d. Average total cost (ATC) is the total cost (TC) divided by the quantity (Q). Since the total cost (TC) is not given, we can't calculate the ATC with the information provided.
e. We can't determine if the average variable cost (AVC) is increasing, decreasing, or constant because we don't have the necessary data. The same goes for the average total cost (ATC).
In summary, based on the information provided, we were able to calculate the marginal cost (a) and determine the output (c). However, we couldn't calculate the average variable cost (b) or average total cost (d), nor can we determine whether they are increasing, decreasing, or constant (e).