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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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