Suppose That for a Particular Firm the Only Variable Input

question 7

Multiple Choice

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the firm hires 5 workers?

• A)$2.00
• B)$20.00
• C)$20.80
• D)$22.80

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Definitions:

Trade

The exchange of goods, services, or both between two or more parties, either within an economy or between economies.

Comparative Advantage

The ability of an individual, firm, or country to produce a particular good or service at a lower opportunity cost than others.

World Price

denotes the global market price of a good or service, which can affect domestic markets through imports and exports.

Domestic Price

The price of goods or services within the domestic market of a country, unaffected by international prices.