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Solving a Firm's Costs

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Please help with the following problem.

1) Consider a firm that has just built a plant, which cost $20,000. Each worker costs $5.00 per hour. Based on this information, fill in the table below:
(see attached file for table)

2) How would each of the following affect the firm's marginal, average, and average variable cost curves?
a. An increase in wages
b. A decrease in material costs
c. The government imposes a fixed amount of tax.
d. The rent that the firm pays on the building that it leases decreases.

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Solution Summary

This solution helps with problems involving a firm's costs. including variable costs, wages and material costs.

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1) Consider a firm that has just built a plant, which cost $20,000. Each worker costs $5.00 per hour. Based on this information, fill in the table below:

(see attached file for completed table)

2) How would each of the following affect the firm's marginal, average, and average variable cost curves?
a. An increase in wages
b. A decrease in material costs
c. The government imposes a fixed amount of tax.
d. The rent that the firm pays on the building that it leases decreases.
Answer:
(a) An increase in the wages will increase the marginal, average and the average variable cost and hence the curves will get pushed up ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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