Asked by Michael Ariestan on Jul 14, 2024
Verified
Austin's total fixed cost at the bakery is $3,600 a month.Austin employs 20 workers and pays each worker $8 an hour.The marginal product of the twentieth worker is 12 iced cupcakes an hour.What is the marginal cost of the last cupcake produced by the last worker Austin hired?
A) $0.26
B) $0.66
C) $3.81
D) $8.00
Marginal Cost
The additional cost incurred in the production of one more unit of a good or service.
Marginal Product
The additional output that is produced by employing one more unit of a particular input, while holding other inputs constant.
Fixed Cost
A financial outlay that is unaffected by variations in the production or sales levels of goods and services.
- Distinguish between marginal cost and total variable cost, and compute the total variable cost.
- Clarify the effect of escalating and declining marginal returns on marginal cost.
Verified Answer
AM
Alejandra MartinezJul 15, 2024
Final Answer :
B
Explanation :
To find the marginal cost of the last cupcake produced by the last worker, we need to use the formula:
Marginal Cost = Change in Total Cost / Change in Quantity
We know that the marginal product of the last worker is 12 cupcakes per hour, so the change in quantity is 12. We also know that each worker is paid $8 per hour, so the additional cost of hiring the last worker is $8.
To find the change in total cost, we need to know how much of the 20 workers are currently being used. If all 20 workers are being fully utilized, then hiring the last worker will result in a total cost increase of $8 because the fixed cost remains the same. However, if not all workers are being fully utilized, then hiring the last worker will increase the total output and reduce the average cost per unit of output. In this case, we are not given information about the level of utilization, so we assume that all workers are being fully utilized.
Therefore, the marginal cost of the last cupcake produced by the last worker is:
Marginal Cost = $8 / 12 cupcakes
Marginal Cost = $0.66
So the best choice is B, $0.66.
Marginal Cost = Change in Total Cost / Change in Quantity
We know that the marginal product of the last worker is 12 cupcakes per hour, so the change in quantity is 12. We also know that each worker is paid $8 per hour, so the additional cost of hiring the last worker is $8.
To find the change in total cost, we need to know how much of the 20 workers are currently being used. If all 20 workers are being fully utilized, then hiring the last worker will result in a total cost increase of $8 because the fixed cost remains the same. However, if not all workers are being fully utilized, then hiring the last worker will increase the total output and reduce the average cost per unit of output. In this case, we are not given information about the level of utilization, so we assume that all workers are being fully utilized.
Therefore, the marginal cost of the last cupcake produced by the last worker is:
Marginal Cost = $8 / 12 cupcakes
Marginal Cost = $0.66
So the best choice is B, $0.66.
Learning Objectives
- Distinguish between marginal cost and total variable cost, and compute the total variable cost.
- Clarify the effect of escalating and declining marginal returns on marginal cost.