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?
$66, $76, $906, $946
To find the total cost of production when the firm hires 7 workers, we need to consider both fixed and variable costs.
Fixed cost: $6
Variable cost per unit of labor: $10
Since the marginal product of the seventh unit of labor is 4, we know that the firm is experiencing diminishing returns to labor. This means that the additional output produced by the seventh worker is less than that of the previous workers.
To calculate the total variable cost, we can use the formula:
Total variable cost = Variable cost per unit of labor * Number of workers
Total variable cost = $10 * 7 = $70
Now, to calculate the total cost, we add the fixed cost and the total variable cost:
Total cost = Fixed cost + Total variable cost
Total cost = $6 + $70 = $76
Therefore, the total cost of production when the firm hires 7 workers is $76. So, the correct answer is $76.
To determine the total cost of production when the firm hires 7 workers, we need to calculate the total variable cost and add it to the fixed cost.
First, let's calculate the total variable cost:
Given that the variable cost per unit of labor is $10, and the firm hires 6 workers to produce 90 units of output, we can find the total variable cost using the formula:
Total Variable Cost = Variable Cost per Unit of Labor × Quantity of Labor
Total Variable Cost = $10 × 6 workers = $<<10*6=60>>60
Now, let's calculate the total cost of production by adding the fixed cost and the total variable cost:
Total Cost of Production = Fixed Cost + Total Variable Cost
Total Cost of Production = $6 (fixed cost) + $60 (total variable cost) = $66
Therefore, the total cost of production when the firm hires 7 workers is $66.
The correct answer is $66.