Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is
A) $1.42.
B) $1.24.
C) $0.70.
D) $0.40.

Question

Quizplus · Accepted Answer

The total cost of production is calculated by adding the total cost of labor and the total cost of capital. Total cost of labor = 10 units * $15/unit = $150. Total cost of capital = 4 units * $50/unit = $200. Therefore, the total cost of production = $150 + $200 = $350. The per unit cost of production = Total cost of production / Total units of output = $350 / 500 units = $0.70 per unit.

Suppose That an Economy Produces 500 Units of Output