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Description of Average Costs

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Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed input is $500.

9. What is average variable cost?

a. $0.63
b. $1.60
c. $3.20
d. $10.00
e. None of the above.

10. What is the marginal cost?

a. $0.63
b. $0.94
c. $1.60
d. $3.20
e. None of the above.

11. What is average total cost?

a. $0.825.
b. $0.63
c. $1.80
d. $4.10
e. None of the above.

12. Which of the following is true?

a. Average variable cost is increasing.
b. Marginal cost is increasing.
c. Average variable cost is decreasing.
d. Cannot determine without more information.

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Solution Summary

Using brief equations, this solution provides answers for average variable cost, marginal cost, and average total cost, and provides simple responses to the questions.

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The answers are
9 -- b
10--e
11--c
12--c

For 9, Average variable cost = Total ...

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