Refer to the following:

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.

-What is average variable cost?
A) $0.63
B) $1.60
C) $3.20
D) $10.00
E) none of the above

Question

Refer to the following:

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.

-What is average variable cost?
A) $0.63
B) $1.60
C) $3.20
D) $10.00
E) none of the above

Quizplus · Accepted Answer

Average variable cost is calculated by dividing total variable cost by the quantity produced. In this case, the total variable cost is $160 (800 units x $0.20 per unit) and the quantity produced is 1000 units. Dividing $160 by 1000 units gives an average variable cost of $1.60 per unit. Therefore, choice B is the correct answer.

Refer to the Following