Refer to the following:
Following is a firm's expansion path. The price of capital is $5 per unit; the price of labor is $2 per unit.

$\begin{array}{ccc}
&\text { Optimal Imput Choice }\
\text { Units of Output } & \text { Units of Capital }&\text { Units of Labor } \
10 & 6 &5 \
20 & 8 & 10 \
30 & 13 & 20 \
\end{array}$
-How much does the 10th unit of output add to long-run total cost?
A) zero
B) $3
C) $4
D) $40
E) none of the above

Question

Refer to the following:
Following is a firm's expansion path. The price of capital is $5 per unit; the price of labor is $2 per unit.

$\begin{array}{ccc}
&\text { Optimal Imput Choice }\
\text { Units of Output } & \text { Units of Capital }&\text { Units of Labor } \
10 & 6 &5 \
20 & 8 & 10 \
30 & 13 & 20 \
\end{array}$
-How much does the 10th unit of output add to long-run total cost?
A) zero
B) $3
C) $4
D) $40
E) none of the above

Quizplus · Accepted Answer

The 10th unit of output requires 6 units of capital and 5 units of labor. The cost is (6 * $5) + (5 * $2) = $30 + $10 = $40. The 20th unit requires 8 units of capital and 10 units of labor, costing (8 * $5) + (10 * $2) = $40 + $20 = $60. The additional cost for the 10th unit is $60 - $40 = $20. However, the question asks for the cost added by the 10th unit alone, which is the marginal cost of the first 10 units, not the difference between 10 and 20 units. Therefore, the cost of the 10th unit is $4, as it is the average cost per unit for the first 10 units ($40/10).

Refer to the Following: Following Is a Firm's Expansion Path

Refer to the Following:
Following Is a Firm's Expansion Path