Question

Assume fixed costs are 470 and labor costs $20 per unit. the first laborer produces 20 units of output. subsequent hires add 5 units less to production than the previous worker. thus the second worker adds 15, the third adds 10 etc. however the fifth worker adds 25 units to output, sixth l20 units, etc., and the ninth worker adds 30 units, the tenth 25, and so forth in sequence. the firm can hire all the labor it wants at the going wage. if it does so we can be sure that, with this jagged productivity curve

group of answer choices
a. none of the answer choices are correct.
b. marginal cost will decrease.
c. average variable cost will increase.
d. average total cost will increase.

Answer 1

Final answer:

The relationship between the number of workers and output in this firm's jagged productivity curve leads to varying marginal costs. Since fixed costs are constant and labor costs are fixed per unit, the changes in productivity impact average total costs and average variable costs. Initially, as marginal productivity diminishes, both average variable cost and average total cost will likely increase. The correct answer is option c. and d.

Step-by-step explanation:

When analyzing a firm's production costs, it's crucial to understand the relationship between the number of workers hired and the resulting output. This question addresses a situation where each additional worker contributes a different amount to total output, with the first worker producing 20 units and subsequent workers contributing progressively less. However, there's a twist: starting with the fifth worker, the amount added to production increases again.

Fixed costs remain constant at $470, regardless of the output level. Labor costs are $20 per unit. Since each worker's contribution to output varies, the marginal cost (the additional cost of producing one more unit) and average variable cost (the variable cost per unit produced) will also vary.

Given the jagged productivity curve where additional workers increase output by differing amounts, we can anticipate that the marginal cost will not have a consistent trend of increase or decrease. The average total cost (the total cost divided by the number of units produced) and average variable cost are shaped by both fixed costs and variable costs. Based on the description, the average variable cost and average total cost would likely increase due to diminishing marginal productivity initially, followed by increasing marginal productivity as the sequence progresses with the fifth worker onwards.