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 table below 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. $$\begin{array} { | c | c | }
\hline \begin{array} { c }
\text { Employee-Hours } \
\text { Per Day }
\end{array} & \begin{array} { c }
\text { Output } \
\text { Per Day }
\end{array} \
\hline 0 & 0 \
\hline 1 & 40 \
\hline 4 & 80 \
\hline 9 & 120 \
\hline 15 & 160 \
\hline 23 & 200 \
\hline
\end{array}$$ 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 table below 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. $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Employee-Hours } \
\text { Per Day }
\end{array} & \begin{array} { c } 
\text { Output } \
\text { Per Day }
\end{array} \
\hline 0 & 0 \
\hline 1 & 40 \
\hline 4 & 80 \
\hline 9 & 120 \
\hline 15 & 160 \
\hline 23 & 200 \
\hline
\end{array}$$ What is the marginal cost of production between 80 and 120 units of output each day?

Quizplus · Accepted Answer

Marginal cost is the cost of producing one additional unit of output. To find the marginal cost between 80 and 120 units of output, we need to calculate the cost of increasing output from 80 to 120 units.

From the table, we can see that producing 80 units requires 4 employee hours (from row 3), and producing 120 units requires 9 employee hours (from row 4). Therefore, to increase production from 80 to 120 units, the firm needs to use an additional 5 employee hours (9-4).

The cost of using 5 additional employee hours is:

5 hours x $14 per hour = $70

Therefore, the marginal cost of producing an additional 40 units (from 80 to 120 units) is:

$70 / 40 units = $1.75

So the correct answer is (B).

Suppose a Firm Uses Workers and Office Space to Produce