Refer to the following:
The following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,800. Fixed cost is $160,000.

-When the firm uses 40 units of labor, what is AVC at this level of output?
A) $120
B) $400
C) $40
D) $70
E) $86

Question

Refer to the following:
The following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,800. Fixed cost is $160,000.
 
-When the firm uses 40 units of labor, what is AVC at this level of output?
A) $120 
B) $400 
C) $40 
D) $70 
E) $86

Quizplus · Accepted Answer

At 40 units of labor, the average product of labor is approximately 110, as shown by the intersection of the MP curve and the AP curve. Therefore, the firm is producing approximately 4,400 units of output (110 units per worker × 40 workers). The total variable cost (TVC) of producing 4,400 units of output with 40 workers can be found by tracing up from the quantity produced to the TVC curve and then over to the TVC axis. The TVC per month is approximately $280,000. Therefore, the average variable cost (AVC) at this output level is:
AVC = TVC/Q = $280,000/4,400 = $63.64 ≈ $70

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