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    Calculating average, marginal, and total costs of production

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    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.
    a. Calculate the average variable cost with calculations.
    b. Calculate the Marginal cost with calculations.
    c. Calculate the average total cost with calculations.
    d. Is each of the following statements true or false and why?
    - marginal cost is increasing
    - average variable cost is increasing
    - average total cost is decreasing

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    Solution Preview

    Quantity (Q) = Labor (L) x Average Product of Labor (APL)
    Q = 50x50 = 2500
    Total Variable Cost (TVC) = L x Wage(W)
    TVC = 50 x 80 = 4000
    Average Variable ...

    Solution Summary

    This solution gives detailed calculations showing how to calculate average, marginal and total costs of production for a firm whose only variable input is labor. All calculations are shown in full.