Question

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers it produces 90 units of output. Fixed cost of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the total cost of production when the firm hires 7 workers? (Show your work)

Answer 1

Amount of output produced when it hire 6 workers = 90 and Marginal Product of 7th worker = 4. Hence Total output produced when It hires 7 workers = 90 + 4 = 94 units.

Total Cost = Fixed Cost + Variable Cost

Given Fixed Cost = $6

Here Variable Cost = wage rate * Amount of Labor Hired = 10*L

As we have to find cost of production when 7 unit of labor is hired means we have L = 7 => Variable Cost = 70.

Hence Total Cost = 6 + 70 = $76

Hence, the total cost of production when the firm hires 7 workers is $76