If labor is the variable input, then marginal cost equals
A)MPP divided by the wage rate.
B)average variable (labor) costs divided by MPP.
C)average variable (labor) costs multiplied by MPP.
D)the wage rate divided by MPP.
E)the wage rate multiplied by MPP.

Question

Quizplus · Accepted Answer

Marginal cost (MC) is the increase in total cost that arises from an extra unit of production. When labor is the variable input, the marginal cost is calculated as the wage rate (the cost of hiring an additional unit of labor) divided by the marginal physical product (MPP) of labor, which is the additional output produced by an additional unit of labor. This is because the MPP tells us how much extra output we get from an extra unit of labor, and dividing the wage rate by this amount gives us the cost of producing one more unit of output.

If Labor Is the Variable Input, Then Marginal Cost Equals