$\begin{array} { | c | c | }
\hline Input ~Quantity & Real ~Domestic ~Output \
\hline 100 & 200 \
\hline 150 & 300 \
\hline 200 & 400 \
\hline
\end{array}$
The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. If the price of each input is $\$ 5$, the per-unit cost of production in the economy is
A) $5.
B) $2.75.
C) $2.50.
D) $0.40.

Question

$\begin{array} { | c | c | } 
\hline Input ~Quantity & Real ~Domestic ~Output \
\hline 100 & 200 \
\hline 150 & 300 \
\hline 200 & 400 \
\hline
\end{array}$
The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. If the price of each input is $\$ 5$, the per-unit cost of production in the economy is
A) $5.
B) $2.75.
C) $2.50.
D) $0.40.

Quizplus · Accepted Answer

To find the per-unit cost of production, we need to calculate the average variable cost (AVC) of production. AVC is calculated as the total variable cost (TVC) divided by the quantity of output produced. TVC is the cost of the inputs used in production and is equal to the price of input multiplied by the quantity of input used. Using the information from the table, we can calculate the TVC for each level of output.

For the output level of 200, the quantity of input used is 200/2 = 100, since each unit of output requires 0.5 units of input. Therefore, the TVC for that level of output is:

TVC = 100 x $5 = $500

Similarly, we can calculate the TVC for the other two levels of output:

For the output level of 150, the quantity of input used is 150/3 = 50, so TVC = 50 x $5 = $250

For the output level of 100, the quantity of input used is 100/4 = 25, so TVC = 25 x $5 = $125

Now we can use these TVC values to calculate the AVC for each level of output:

AVC(output=100) = TVC(output=100) / output = $125/100 = $1.25
AVC(output=150) = TVC(output=150) / output = $250/150 = $1.67
AVC(output=200) = TVC(output=200) / output = $500/200 = $2.50

The per-unit cost of production is equal to the AVC at the output level of 200, which is $2.50. Therefore, the best choice is C.

The Table Gives Information About the Relationship Between Input Quantities