Suppose that Billy Bud's Bucking Broncos employs 20 workers at a daily wage of $60 each.The average product of labor is 30 bucking broncos per day;the marginal product of the last worker is 12 bucking broncos per day;and total fixed cost is $3,600 for equipment.What is the marginal cost of the last bucking bronco produced?

Question

Quizplus · Accepted Answer

To calculate the marginal cost of the last bucking bronco produced, we need to use the formula:

Marginal Cost = (Change in Total Cost) / (Change in Total Output)

We know that the total fixed cost is $3,600, so the only variable cost is labor.

The total cost of labor is:

Total Labor Cost = (# of Workers) x (Daily Wage) x (Number of days) 
Total Labor Cost = (20 workers) x ($60 daily wage) x (1 day)
Total Labor Cost = $1,200

Therefore, the total cost of producing 30 bucking broncos is:

Total Cost = $3,600 (fixed cost) + $1,200 (labor cost)
Total Cost = $4,800

The total cost of producing 31 bucking broncos is:

Total Cost = $3,600 (fixed cost) + $1,260 (labor cost for 21 workers)
Total Cost = $4,860

So the change in total cost is:

Change in Total Cost = $4,860 - $4,800
Change in Total Cost = $60

The change in total output is:

Change in Total Output = 31 - 30
Change in Total Output = 1

Therefore, the marginal cost is:

Marginal Cost = $60 / 1
Marginal Cost = $60

However, we need to express marginal cost in terms of each bucking bronco produced. Since the marginal product of labor is 12, we know that each worker is producing an average of 30/20 = 1.5 bucking broncos.

Therefore, the marginal cost of each additional bucking bronco produced is:

Marginal Cost per Bucking Bronco = $60 / 1.5
Marginal Cost per Bucking Bronco = $40

But this is not the final answer because the question asks for the marginal cost of the last bucking bronco produced, not the marginal cost of each bucking bronco.

Since the marginal product of the last worker is 12, we know that the last worker produced 12/1.5 = 8 additional bucking broncos. Therefore, the marginal cost of the last bucking bronco produced is:

Marginal Cost of Last Bucking Bronco = $40 / 8
Marginal Cost of Last Bucking Bronco = $5.00

So the best choice is B, $5.00.

Suppose That Billy Bud's Bucking Broncos Employs 20 Workers at a Daily