Calculating average, marginal, and total costs of production

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

Solution Preview

a)
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.

Use the total cost (TC) schedule presented in the table below to calculate the average total cost, average variable cost, average fixed cost, and marginal cost when output (Q) is equal to 5.
Q 0 1 2 3 4 5 6 7 8 9
TC 5 7 8 10 14 20 28 38

Calculate the following short-run costs for a firm:
Q = 0, TC = 20: what is the fixed cost?
Q = 1, MC = 20: what is the total cost when Q = 1?
Q = 2, AVC = 15: what is average total cost when Q = 2?
Q = 3, TC = 77: what is marginal cost when Q = 3?
Q = 4, TVC = 76: what is marginal cost when Q = 4?

1. If the government imposes a $1 per-unit tax, how do the marginal, average total, and average variable costs change? What if instead the government imposes a $100 per-firm tax?
2. a) Why are short-run marginal cost curves expected to slope upward?
b) If you know that average costs are increasing, is the marginal cost

Total Output Cost TFC TVC AFC AVC ATC MC
0 $20
10 $40
20 $60
30 $90
40 $120
50 $180
60 280
1. Use the above table to answer the questions listed below.
a. Calculate the total fixed costs, total variable costs, average fixed costs, average variable costs, average total co

(i) Suppose a firm's short-run average cost curve is U shaped: what does this imply about the marginal return to the variable input? (ii) Comment on the following statement: "Average cost includes both fixed and variable costs, whereas marginal cost only includes variable costs. Therefore, marginal cost is never greater than ave

A firm has fixed costs of $60 and variable costs as indicated in the table on the attached Excel spreadsheet. Complete the table and check the calculations.
Total Product Total Fixed Cost Total Variable Cost
0 $0
1