The following graph shows the marginal and average product curves for labor,the firm's only variable input.The monthly wage for labor is $2,800.Fixed cost is $160,000. At what output does the firm reach minimum average variable cost?
A)7,400
B)8,000
C)100
D)6,000
E)600

Question

The following graph shows the marginal and average product curves for labor,the firm's only variable input.The monthly wage for labor is $2,800.Fixed cost is $160,000.  At what output does the firm reach minimum average variable cost?
A)7,400 
B)8,000 
C)100 
D)6,000 
E)600

Quizplus · Accepted Answer

The point where the AVC curve reaches its minimum is where it intersects with the MC curve. This occurs at an output of approximately 8,000 units. At this level of output, the AVC is at its lowest point, which means the firm is operating most efficiently in terms of labor use. At any output level below 8,000, the AVC is higher, which means the firm is not using labor as efficiently as possible.

The Following Graph Shows the Marginal and Average Product Curves