-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 2 and hires 4 workers. What is the firm's average total cost?
A) $6.00
B) $8.26
C) $10.55
D) $12.40

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 2 and hires 4 workers. What is the firm's average total cost?
A) $6.00 
B) $8.26 
C) $10.55 
D) $12.40

Quizplus · Accepted Answer

To find the average total cost, calculate the total cost (fixed costs + variable costs) and divide by the quantity produced. Fixed costs are $200 (2 ovens x $100), variable costs are $1,120 (4 workers x $280), and opportunity cost is $1,000. Total cost is $2,320. If Plant 2 with 4 workers produces 220 pizzas, the average total cost is $2,320 / 220 = $10.55.

-Silvio's Pizza Is a Small Pizzeria