17. Suppose that for a particular firm the only variable input into the producti

Question

17. 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 2 workers, the total cost of production is S100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost? a. $80 b. $40 $60 d. $100

Explanation / Answer

total cost equals variable cost plus fixed cost.

when the firm employes 2 labors, total cost is 100. But when the firm hires 3 workers, it becomes 120. This means marginal cost of hiring one unit of worker is 20. As a result 3 workers means 3*20 equal 60. We have given total cost is 60, therefore fixed cost will be 120 minus 60 equal 60

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