Suppose that Billy Bud's Bucking Broncos employs 20 workers at a daily wage of $60 each.The average product of labor is 30 bucking broncos per day;the marginal product of the last worker is 12 bucking broncos per day;and total fixed cost is $3,600 for equipment.What is the marginal cost of the last bucking bronco produced?

A) $0.20
B) $5.00
C) $240.00
D) $720.00

Question

Student Sierra Lawson · Accepted Answer

Final Answer : B, Explanation :  To calculate the marginal cost of the last bucking bronco produced, we need to use the formula:Marginal Cost = (Change in Total Cost) / (Change in Total Output)We know that the total fixed cost is $3,600, so the only variable cost is labor.The total cost of labor is:Total Labor Cost = (# of Workers) x (Daily Wage) x (Number of days)Total Labor Cost = (20 workers) x ($60 daily wage) x (1 day)Total Labor Cost = $1,200Therefore, the total cost of producing 30 bucking broncos is:Total Cost = $3,600 (fixed cost) + $1,200 (labor cost)Total Cost = $4,800The total cost of producing 31 bucking broncos is:Total Cost = $3,600 (fixed cost) + $1,260 (labor cost for 21 workers)Total Cost = $4,860So the change in total cost is:Change in Total Cost = $4,860 - $4,800Change in Total Cost = $60The change in total output is:Change in Total Output = 31 - 30Change in Total Output = 1Therefore, the marginal cost is:Marginal Cost = $60 / 1Marginal Cost = $60However, we need to express marginal cost in terms of each bucking bronco produced. Since the marginal product of labor is 12, we know that each worker is producing an average of 30/20 = 1.5 bucking broncos.Therefore, the marginal cost of each additional bucking bronco produced is:Marginal Cost per Bucking Bronco = $60 / 1.5Marginal Cost per Bucking Bronco = $40But this is not the final answer because the question asks for the marginal cost of the last bucking bronco produced, not the marginal cost of each bucking bronco.Since the marginal product of the last worker is 12, we know that the last worker produced 12/1.5 = 8 additional bucking broncos. Therefore, the marginal cost of the last bucking bronco produced is:Marginal Cost of Last Bucking Bronco = $40 / 8Marginal Cost of Last Bucking Bronco = $5.00So the best choice is B, $5.00.

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