Question

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 2 workers, the total cost of production is $100. when the firm hires 3 workers, the total cost of production is $120. in addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. what is the firm's fixed cost?

Answer 1

Variable Cost per unit= Difference in Total Cost at two different levels/ Difference in Quantity of Inputs at that level

Variable Cost per unit=20(120-100)/1(3-2)

Thus at level 2 Total Variable cost=$20*2=$40

Thus Fixed Cost=100-40= $60

Fixed Cost=$60.