Question

Austin's total fixed cost is $4,000. Austin employs 20 workers and pays each worker $120. The average product of labor is 2, and the marginal product of the last worker hired is 10. What is the marginal cost of the last unit produced by the last worker Austin hired

Answer 1

$12

Step-by-step explanation:

Marginal cost may be defined as the change in the cost of production resulting from the production of one more additional unit of an item.

Hence, it is the ratio of the change in cost of production and the change in quantity produced

Marginal cost = (change in total cost / change in quantity)

The marginal cost of the last unit produced by the last worker hired is :

Hiring cost of the last worker / marginal product of the last worker

Hiring Cost per worker = $120

Marginal product of last worker = 10

Hence,

Marginal cost = $120 / 10 = $12