A factory producing calculators employs four workers. At current levels of operation each worker produces 40 calculators per week. Assuming labor is the only variable input and the weekly wage is $400 per worker:
A) average variable cost is $10.
B) variable cost is $10.
C) average variable cost is $40.
D) average fixed cost is $10.

Question

Quizplus · Accepted Answer

Average variable cost is calculated by dividing the total variable cost by the total output. The total variable cost is the total wages paid to workers, which is 4 workers * $400 = $1600. The total output is 4 workers * 40 calculators = 160 calculators. Therefore, the average variable cost is $1600 / 160 = $10 per calculator.

A Factory Producing Calculators Employs Four Workers