The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
TABLE 7-3
-Refer to Table 7-3.At what level of output does average variable cost reach a minimum?
A)30
B)90
C)132
D)150
E)AVC declines continuously over the range of output shown.

Question

The following data show the total output for a firm when different amounts of labour are combined with a fixed amount of capital.Assume that the wage per unit of labour is $10 and the cost of the capital is $50.
  TABLE 7-3
-Refer to Table 7-3.At what level of output does average variable cost reach a minimum?
A)30 
B)90 
C)132 
D)150 
E)AVC declines continuously over the range of output shown.

Quizplus · Accepted Answer

Average variable cost reaches a minimum where it intersects with marginal cost. This occurs at an output level of 132, as shown in the table. This is also the point where the firm should produce to maximize profits, since MC=MR at this point as well.

The Following Data Show the Total Output for a Firm