Suppose Billy Bud's Bucking Broncos employs 20 workers at a daily wage rate 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 find the marginal cost of the last bucking bronco produced, we need to use the formula:

Marginal cost = (change in total cost) / (change in quantity)

We already know that the marginal product of labor is 12, which means that the 20 workers are producing an additional 12 bucking broncos by hiring one more worker.

Therefore, the change in quantity is 12 and the change in total cost is the cost of the additional worker. Since the daily wage rate is $60, the cost of the additional worker is $60.

However, we also need to consider the total fixed cost of $3,600 for equipment. This cost does not change with the production of additional bucking broncos.

So, the total cost of producing 30 bucking broncos with 20 workers is:

Total cost = (20 x $60) + $3,600 = $4,800

And the total cost of producing 42 bucking broncos with 21 workers is:

Total cost = (21 x $60) + $3,600 = $4,860

Therefore, the change in total cost is $60 and the change in quantity is 12, so the marginal cost is:

Marginal cost = $60 / 12 = $5.00

The best choice is B because it is the correct answer for the marginal cost of the last bucking bronco produced.

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