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>
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.
To find the answers to the questions, we need to use some formulas and information provided in the question.
a. To calculate the marginal cost, we need to know how much total cost changes when the number of workers increases by one. However, since the total fixed cost is given as $3,600 and it does not change with the number of workers, the marginal cost will be equal to the wage rate of $60.
b. To calculate the average variable cost, we need to divide the total variable cost by the number of workers. The total variable cost is the total cost minus the total fixed cost. The wage rate multiplied by the number of workers will give us the total variable cost. So, the average variable cost is:
Average Variable Cost = (Total Cost - Total Fixed Cost) / Number of workers
= (Wage Rate * Number of workers - Total Fixed Cost) / Number of workers
= ($60 * 30 - $3,600) / 30
= ($1,800 - $3,600) / 30
= -$1,800 / 30
= -$60 (Note: Negative value indicates an error)
c. The average product of labor tells us the amount of output produced per worker. It is given as 30. To find the total output being produced, we multiply the average product of labor by the number of workers:
Total Output = Average Product of Labor * Number of workers
= 30 * 30
= 900 units
d. Average total cost is the total cost divided by the number of units produced. In this case, since the total fixed cost is given as $3,600 and the total variable cost is not provided, we cannot calculate the average total cost without more information.
e. Since we don't have the information about the total variable cost, we cannot determine if the average variable cost is increasing, decreasing, or constant. Similarly, without the total cost information, we cannot determine the behavior of average total cost either.