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 the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produceda. $10
b. $25
c. $30
d. $35

Answer 1

Answer:

d. $35

Explanation:

   (1)                            (2)                                              (1) × (2)

No of units          Avg total cost   Marginal Cost   Total Cost  

5 units                      $30                        -                       $150               -                    

6 units                      $35                        $60                 $210      

Total Cost for 6 units = 150$ + $60 (marginal cost) =  $210

Average total cost = $210 ÷ 6 units = $35

Marginal cost is the change in total cost when an additional unit of output is produced.

Average total cost is the total cost per unit of output produced.

Answer 2

The average total cost when six units are produced is $35.

• The calculation is as follows:

  (1)                            (2)                                              (1) × (2)

No of units          Avg total cost   Marginal Cost   Total Cost  

5 units                      $30                        -                       $150               -                    

6 units                      $35                        $60                 $210      

Now  

Total Cost for 6 units

= 150$ + $60 (marginal cost)

=  $210

Now  

Average total cost is

= $210 ÷ 6 units

= $35

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