Assume that labor—the only variable input of a firm—has the average and marginal product curves shown in the following graph

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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