Question

4. Suppose you are given the following partially complete table for the coming month. You have a meeting with the chief financial officer in fifteen minutes and he is expecting this information in its entirety. Note: all labor units are paid equally and labor is the firm’s only variable input.     

            a)

Labor	Q	Fixed Cost	Variable Cost	Total Cost
0	0		$0
1	5,500
2	8,500
3	9,000
4	9,200		$1,000
5	9,000			$1,250

        

b) Suppose the marginal resource (or factor) cost for the month increases from its current level in part a) to $300 per worker. Given the numbers in part a), if the market price for this output is $0.50 per unit, where would the company stop hiring workers? Make sure you detail your work.

c) What would be the average variable cost when hiring two workers (assume the original numbers from part a)? If the market price is $0.50 per unit, should this firm remain in business or shut down in the short-run? How do you know?

Answer 1