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 total cost?
A) $0.825
B) $0.63
C) $1.80
D) $4.10
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 total cost?
A) $0.825
B) $0.63
C) $1.80
D) $4.10
E) none of the above

Quizplus · Accepted Answer

The average total cost (ATC) is calculated by dividing the total cost by the total output. Total cost includes both fixed and variable costs. The variable cost is the wage rate multiplied by the number of workers, which is $80 * 50 = $4000. The total cost is $4000 (variable) + $500 (fixed) = $4500. The total output is the average product of labor multiplied by the number of workers, which is 50 * 50 = 2500. Therefore, ATC = $4500 / 2500 = $1.80.

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