-Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost, $280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week. Suppose Silvio's uses Plant 1 and hires 2 workers. What is the firm's average variable cost?
A) $7.00
B) $6.40
C) $19.50
D) $8.25

Question

-Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost, $280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week. Suppose Silvio's uses Plant 1 and hires 2 workers. What is the firm's average variable cost?
A) $7.00 
B) $6.40 
C) $19.50 
D) $8.25

Quizplus · Accepted Answer

The average variable cost (AVC) is calculated by dividing the total variable cost (TVC) by the quantity of output produced. With 2 workers, the labor cost is 2 * $280 = $560. If Plant 1 produces 80 pizzas with 2 workers, then AVC = $560 / 80 = $7.00.

-Silvio's Pizza Is a Small Pizzeria