Sample Essay
Assuming that the total fixed cost (TFC) of the firm is $1,000,000:
Total Variable Cost (TVC) = (50000 workers x $80 wage per worker) + 400,000
= $4,400,000
Average Variable Cost (AVC) = Total Variable cost / Units of Output per Day
= $ 4,400,000/200,000 units
= $22 per unit
Average Total Cost (ATC) = (Total Variable Cost +Total Fixed Cost) / Units of Output per day
= ($4,400,000+ $1,000,000) / 200,000 units
= $ 27 per unit
Worker productivity = Units of Output per Day / Number of Workers
=200,000 units/ 50000 workers
= 4 units per worker.
Assuming that the total fixed cost (TFC) of the firm is now $3,000,000:
Total Variable Cost (TVC) = (50000 workers x $80 wage per worker) + 400,000
= $4,400,000
Average Variable Cost (AVC) = $ 4,400,000/200,000 units
= $22 per unit
Average Total Cost (ATC) = ($4,400,000+ $3,000,000) / 200,000 units
= $ 37 per unit
Worker productivity = 200,000 units/ 50000 workers
= 4 units per worker.
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