Answer:
Case 1:
When, Labor = 6 ;
Output = 90
Fixed Cost = $6
Variable cost per unit of labor = $10
∴ Total Variable Cost = $10 × 6 = $60
Total cost = Fixed Cost + Total Variable Cost
= $60 + $6
= $66
Case 2:
When, Labor = 7 ;
Let us assume the total output be 'x' , when firm hires 7 workers.
Marginal product( [tex]MP_{L}[/tex]) of the seventh unit of labor = 4
i.e. [tex]MP_{L}[/tex]= [tex]\frac{\delta TP}{\delta Q}[/tex] = 4
[tex]\frac{\delta TP}{\delta Q}[/tex] = 4
[tex]\frac{(x- 90)}{(7-6)}[/tex] = 4
x = 94
Fixed Cost will remain the same , i.e. $6
Variable cost per unit of labor = $10
∴ Total Variable Cost = $10 × 7 = $70
Total cost = Fixed Cost + Total Variable Cost
= $70 + $6
= $76
