Question

The cookie company in the mall hires only labor to produce cookies. The workers are paid $80 per day, and the cost of renting the space in the mall is $250 per day. Number of workers

Daily output (cookies)

1 200

2 400

3 600

4 700

The daily fixed costs of production are $250.

The labor cost per day of hiring two workers is $ .

The total cost per day when three workers are hired is $ .

Answer 1

(i)

Fixed cost is the cost which is independent of output and is constant. Hence, Here cost of renting the space is the Fixed cost and hence Fixed Cost = $250

(ii)

Labor cost = wL where w = wage rate and L = number of labors hired. Here w = 80 and number of workers hired are 2.

Hence, Total Labor cost = 2*80 = 160.

Hence, The labor cost per day of hiring two workers is $160.

(iii)

Total Cost = Total Fixed Cost + Total Variable Cost.

Here as calculated above Fixed cost = 250 and Variable or labor cost = wL = 80L

Now we have to calculate total cost of hiring 3 workers. Hence L = 3

Hence Total Cost of hiring 3 labors = 250 + 80*3 = 490

Hence, The total cost per day when three workers are hired is $490