Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day.
What is the marginal cost of production between 80 and 120 units of output each day?

Question

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day.   
What is the marginal cost of production between 80 and 120 units of output each day?

Quizplus · Accepted Answer

Marginal cost is the change in total cost divided by the corresponding change in output as output changes from one level to another. The total cost of making 80 units of output is $106 [= (4 × $14)+ $50)], and the total cost of making 120 units of output is $176 [= (9 × $14)+ $50]. Thus, as output increases from 80 to 120 units, marginal cost is $1.75 (= ($176 − $106)/(120 − 80)).

Suppose a Firm Uses Workers and Office Space to Produce