- Suppose that a firm’s only variable input is labor. When 50 workers are used, the average product of labor is 50, and the marginal product of the 50th worker is 75. The wage rate is $80, and the total cost of the fixed input is $500.
- What is average variable cost? Show your calculations.
Total product would be average product times the number of workers: 50 * 50 = 2500.
Total variable cost would be number of workers times the wage rate: 50 * 80 = 4000
Average variable cost would be 4000/2500= 1.6
- What is marginal cost? Show your calculations.
The marginal product of the 50th worker is 75. The cost to hire this worker was $80. Therefore, the marginal cost would be $1.06.
- What is average total cost? Show your calculations.
Total cost equals total variable cost plus total fixed costs: 4000 + 500 = 4500.
Average total cost would be 4500/2500 = 1.8