Assume that the aggregate production function is represented by Y = AN. Which of the following represents the marginal cost of producing an additional unit of output?

A) (1 + A)W.
B) W/A.
C) A/W.
D) 1/W.
E) W.

Question

Assume that the aggregate production function is represented by Y = AN. Which of the following represents the marginal cost of producing an additional unit of output?

A) (1 + A)W.
B) W/A.
C) A/W.
D) 1/W.
E) W.

Quizplus · Accepted Answer

The formula for the marginal cost of producing an additional unit of output in terms of the production function Y=AN is MC = W/MPN, where MPN is the marginal product of labor with respect to N. Since N does not appear in the given production function, we can rewrite it as Y=AN^1 where MPN=dY/dN=A. Thus, MC = W/MPN = W/A.

Assume That the Aggregate Production Function Is Represented by Y