The following graph shows the marginal and average product curves for labor,the firm's only variable input.The monthly wage for labor is $2,800.Fixed cost is $160,000. When the firm uses 40 units of labor,what is average total cost at this output?
A)$140
B)$40
C)$70
D)$170
E)none of the above

Question

The following graph shows the marginal and average product curves for labor,the firm's only variable input.The monthly wage for labor is $2,800.Fixed cost is $160,000.  When the firm uses 40 units of labor,what is average total cost at this output?
A)$140 
B)$40 
C)$70 
D)$170 
E)none of the above

Quizplus · Accepted Answer

To figure out average total cost, we need to add up total variable cost and total fixed cost and divide by the quantity of output. We know that at 40 units of labor, the marginal product of labor is equal to the average product of labor, which is around 140 units of output. So at 40 units of labor, the firm produces:
40 x 140 = 5,600 units of output
From the graph, we can see that at 40 units of labor, the marginal cost is around $100, so the total variable cost is:
40 x $100 = $4,000
To get the total cost, we add in the fixed cost of $160,000, so:
$4,000 + $160,000 = $164,000
Finally, we divide by the quantity of output to get average total cost:
$164,000 / 5,600 = $170

The Following Graph Shows the Marginal and Average Product Curves