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30 November, 06:48

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the firm hires 5 workers

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  1. 30 November, 06:53
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    average total cost = $2 per unit

    Explanation:

    number of workers total output total variable costs

    4 50 $80

    5 52 $100

    fixed costs = $4

    average total cost when firm hires 5 workers = total costs / total output = ($100 + $4) / 52 = $104 / 52 = $2 per unit

    Marginal product of labor is the extra output generated by employing one additional unit of labor.
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