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. When the firm uses 120 units of labor,how much output does it produce?
A)7,000 units
B)70 units
C)8,400 units
D)9,200 units
E)7,500 units

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.  When the firm uses 120 units of labor,how much output does it produce?
A)7,000 units 
B)70 units 
C)8,400 units 
D)9,200 units 
E)7,500 units

Quizplus · Accepted Answer

At the point where the marginal product curve intersects the average product curve, the average product is at its maximum, and from that point on, the marginal product curve lies below the average product curve. This means that when the firm uses 120 units of labor, the average product is at its maximum, and therefore the firm is producing its maximum output. 
From the graph, we can see that the maximum output is approximately 8,400 units, so the answer is (C) 8,400 units.

The Following Graph Shows the Marginal and Average Product Curves