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Suppose you know the following about a widget manufacturing firm: * The total cost of production is $5,000 * The wage rate is $50 * The firm is currently producing 100 widgets * The average product of labor is 5 This average fixed cost of production is $ _____ and the firm is hiring _____ workers
Suppose you know the following about a widget manufacturing firm:
* The total cost of production is $5,000
* The wage rate is $50
* The firm is currently producing 100 widgets
* The average product of labor is 5
This average fixed cost of production is $ _____ and the firm is hiring _____ workers.
Expert Solution
Average product of labor = Total product / total labor
Putting values from the question, we have:
5 = 100 / total labor
=> total labor = 100/5 = 20 workers
Total variable cost = workers*wage = 20*50 = 1000
Total fixed cost = total cost - total variable cost
= 5000 - 1000 = 4000
Average fixed cost = total fixed cost / total output = 4000/100 = 40
Thus, This average fixed cost of production is $ 40 and the firm is hiring 20 workers
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