Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the average variable cost of production when the firm hires 7 workers?
A)$12.67
B)$11
C)81 cents
D)75 cents

Question

Quizplus · Accepted Answer

Average variable cost = Total variable cost / Total outputTotal variable cost = Variable cost per unit of labor * Number of workers= $10 * 7 = $70Total output = 90 + 4 = 94Average variable cost = $70 / 94 = 75 cents

Suppose That a Firm Has Only One Variable Input, Labor