Widgets R Us currently has a fixed amount of capital, which costs the firm $1,000. Since...

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Widgets R Us currently has a fixed amount of capital, which costs the firm $1,000. Since this capital cannot be changed at wi

c. Which statement is true at the level of output associated with 5 workers? Average total cost is falling because marginal c

business economics

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Answer 1

Answer #1

(a)

When L = 5, Output (Q) = 130.

Total cost (TC) ($) = 1,000 + 150 x L = 1,000 + 150 x 5 = 1,000 + 750 = 1,750

ATC = TC / Output (Q) = $1,750 / 130 = $13.46

(b)

Marginal cost (MC) = Change in TC / Change in Q

When L = 4, Q = 100 and TC ($) = 1,000 + 150 x 4 = 1,000 + 600 = 1,600

When L = 5, Q = 130 and TC ($) = 1,000 + 150 x 5 = 1,000 + 750 = 1,750

MC = $(1,750 - 1,600) / (130 - 100) = $150 / 30 = $5.00

(c) Option (4)

When L = 5, ATC = $13.46 and MC = $5, therefore MC < ATC, implying that ATC must be falling.

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