The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
TABLE 7-4
-Refer to Table 7-4.Average variable costs for 175 units of output is approximately
A)25 cents.
B)32 cents.
C)43 cents.
D)57 cents.
E)$1.00.

Question

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100.
  TABLE 7-4
-Refer to Table 7-4.Average variable costs for 175 units of output is approximately
A)25 cents. 
B)32 cents. 
C)43 cents. 
D)57 cents. 
E)$1.00.

Quizplus · Accepted Answer

Average variable cost (AVC) is calculated by dividing total variable cost by the quantity of output. In this case, we can calculate total variable cost by subtracting the cost of capital ($100) from the total cost for each level of output.

For example, at 6 units of labor, the total cost is $175, so the total variable cost is $75 ($175 - $100). Dividing $75 by the quantity of output (175) gives an average variable cost of approximately 43 cents per unit ($0.43).

We can repeat this calculation for each level of output to find that the average variable cost for 175 units of output is closest to 43 cents, which is answer choice C.

The Following Data Show the Total Output for a Firm