Question

In: Economics

In the short run a firm can produce 11 units of output by employing 2 units...

In the short run a firm can produce 11 units of output by employing 2 units (hours) of labour and 15 units of output employing 3 units of labour. Suppose the hourly wage rate is $10. What is the marginal cost of producing the 14th unit of output? Clearly show all steps of your work.

Expert Solution

Total cost of producing 11 units = Labor hours × Hourly rate

= 2 × 10

= $20

Total cost of producing 15 units = Labor hours × Hourly rate

= 3 × 10

= $30

Marginal cost of producing 15th unit = Difference in total cost / Difference in units

= (30 – 20) / (15 – 11)

= 10 / 4

= 2.5

Total cost of producing 14 units = Total cost of producing 15 units - Marginal cost of producing 15th unit

= 30 – 2.5

= 27.5

Marginal cost of producing 14th unit = (TC of 14 units – TC of 11 units) / Difference in units

= (27.5 – 20) / (14 – 11)

= 7.5 / 3

= 2.5

Answer: $2.5

Note: TC means total cost.

Rahul Sunny answered 7 months ago

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