Suppose that the firm's only variable input is labor.When 50 workers are used,the average product of labor is 50 and the marginal product of labor is 75.The wage rate is $80 and the total cost of the fixed input is $500.What is average total cost?
A)$0.825
B)$0.63
C)$1.80
D)$4.10
E)none of the above

Question

Quizplus · Accepted Answer

Average product of labor = total product of labor / number of workers
50 = Q / 50
Q = 2500

Marginal product of labor = change in total product / change in labor
75 = ΔQ / 1
ΔQ = 75

Marginal cost of labor = wage rate / marginal product of labor
MC = 80 / 75
MC = 1.0667

Total variable cost = wage rate x number of workers
TVC = 80 x 50
TVC = 4000

Total cost = fixed cost + total variable cost
TC = 500 + 4000
TC = 4500

Average total cost = total cost / total output
ATC = TC / Q
ATC = 4500 / 2500
ATC = 1.8

Suppose That the Firm's Only Variable Input Is Labor