Question

A firm produces children's bicycles in the short run using two inputs, capital and labor. The quantity of capital is fixed and generates a monthly cost of $6,000. The quantity of labor can be varied, and the wage rate per hour of labor is $20. If 400 hours of labor are hired for the month, and 140 bicycles units of output are produced, what is the firm's average total cost for the month

Answer 1

Average total cost per unit = $100

Step-by-step explanation:

The average total cost is the the total cost divided y the number of units

Average cost = (Total variable cost + Total fixed cost)/ Number of units

Total variable cost = (20× 400)= 8000

Total fixed cost = 6,000

Average total cost = ( 8000 + 6000)/140 = $100

Average total cost per unit = $100