The table below has the total product schedule for an
imaginary good called a widget. Each unit of labor
costs $25 and the total cost of capital is $100.
a. Use this information to complete the table. In
the table, TFC is the total fixed cost, TVC is the
total variable cost, TC is the total cost, AFC is
the average fixed cost, AVC is the average
variable cost, ATC is the average total cost,
and MC is the marginal cost.
b. Suppose that labor becomes twice as
expensive (so that one unit of labor now costs
$50) but nothing else changes. Complete the
above table with the new cost schedules. If you
plotted the cost curves, how would the increased
wage rate affect the cost curves?