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    Production Cost Analysis: Calculating MC, AVC, ATC and Output of the Firm

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    Suppose that a firm is currently employing 20 workers, the only variable input, at a wage rate of $60. The average product of labor is 30, the last worker added 12 units to total output, and total fixed cost is $3,600.

    a) What is marginal cost?

    b) What is average variable cost?

    c) How much output is being produced?

    d) What is average total cost?

    e) Is average variable cost increasing, constant, or decreasing? What about average total cost?

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    Solution Preview


    a) What is marginal cost?

    Marginal Product of last worker =12 units
    Total cost for producing these 12 units=variable cost=wage rate=$60
    Marginal cost=wage rate/marginal product=60/12=$5

    b) What is average variable cost?

    Average Product=30 ...

    Solution Summary

    This solution describes the steps for calculating marginal cost, average variable cost, average total cost and output of firm in the given situation.