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

Quizplus · Accepted Answer

Marginal product of labor (MPL) = change in total output / change in labor input
75 = ΔQ / ΔL
ΔQ = 75ΔL

Average product of labor (APL) = total output / labor input
50 = Q / 50
Q = 50*50 = 2500

Total variable cost (TVC) = wage rate * labor input
TVC = 80*50 = 4000

Total cost (TC) = TVC + total cost of fixed input
500 + 4000 = 4500

Average variable cost (AVC) = TVC / Q
AVC = 4000/2500 = 1.6.

Therefore, the answer is B) $1.60.

Suppose That the Firm's Only Variable Input Is Labor