Question

782. Consider the following information about baseball production at Bob's Baseball Factory @ Worker Marginal MP MC Ave Product MP MC / AVC 113. 56 5. 3 wear eoreare/ inceary 10 OK MP-DC AS 13 4 6 7 Se increas decrease Bob pays all his workers the same wage and labor is his only variable cost. From this information we can con that Bob's average variable cost decreases a. as output rises from 0 to 10, but rises after that b. as output rises from 0 to 26, but rises after that. c. as output rises from 0 to 33, but increases after that. d. continually as output rises. AVC

Answer 1

The correct answer is 'Option C'.

Assuming that the wages paid to each worker are $x.

Average Variable Cost can be calculated by dividing the variable cost by the output produced. In this case, the marginal product is given, so the total product can be calculated by adding the marginal product of each worker.

Worker	Marginal Product	Total Product	Wages (Variable Cost)	Average Variable Cost
1	3	3	x	0.33x
2	5	8	2x	0.25x
3	8	16	3x	0.1875x
4	10	26	4x	0.1538x
5	7	33	5x	0.1515x
6	4	37	6x	0.1621x
7	2	39	7x	0.1795x

It can be clearly seen that the average variable cost falls until the fifth worker is hired and starts rising afterward. So, the average variable cost decreases as output rise from 0 to 33 but increases after that. Therefore, the correct answer is 'Option C'.