Answer to Question #5502 in Microeconomics for Bessie Allen

Question

suppose that a firm has only one variable input, labor and firm output is zero when labor is zero. When the firm hires 6 workers for the firm produces 90 units of output. fixed costs of production are $6 and the variable cost per unit of labor is $10. the marginal product of the seventh unit of labor is 4. given this information what is the average total cost of production when teh firm hires 7 workers. $10.06,$9.64,.81, .70

Answer 1

ATC (average total cost) = TC (total cost) / Q (total output)



TC = FC (fixed costs) + VC (variable costs)

FC = $6 (from condition)

VC = 7 (workers) * $10 (variable cost per unit of labor) = $70

TC = $6 + $70 = $76




Q = 90 (if there are 6 workers) + 4 (marginal product of 7th worker) = 94




ATC = $76 / 94 = 0.81 USD per unit of output