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Homework answers / question archive / Assume that labor—the only variable input of a firm—has the average and marginal product curves shown in the following graph
Assume that labor—the only variable input of a firm—has the average and marginal product curves shown in the following graph. Labor's wage is $60 per unit. 350 250 Average and marginal products AP 150 50 0 20 40 60 80 Labor 100 120 MP CHAPTER 8 Production and Cost in the Short Run 307 a. When the firm attains minimum average variable cost, how many units of labor is it using? b. What level of output is associated with minimum average variable cost? c. What is the average variable cost of producing this output? d. Suppose the firm is using 100 units of labor. What is output? What is marginal cost? What is average variable cost?
a. The average variable cost will be minimum when the Average Product of Labour is maximum. Refer the attached image.
Average variable cost is minimum at L = 80.
b. Refer the attached image
Average product = Output / Labour
Output = Average Product × Labour
=> Output = 250 × 80 = 20,000
c. Average Variable cost = Variable Cost / Quantity
Total variable cost = 80 × $ 60 = $ 4,800
Average Variable Cost = 4,800 / 20,000 = $ 0.24 per unit
d. When 100 units of labour is hired.
Average product = 240 (approximately)
Output = AP × L = 240 × 100 = 24,000
MC = w / MP = $ 60 / 100 = $ 0.6 per unit
AVC = w / AP = $ 60 / 240 = $ 0.25 per unit
The scale is not clear so I have estimated it to be 240 approximately. The formula is correct. I have shown both the formula that can be used to calculate the MC as well as AVC.
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