Explain the relationship between the marginal cost and average variable cost.

You are assigned the task of computing the variable capital and labor costs for Cost Cutters production level. Below is a table with the capital and labor requirements for ten different levels of production.

Production Level Capital VC$12 Labor VC$6 TVC MC AVC
0 0 0
1 3 6
2 6 10
3 9 13
4 12 16
5 15 20
6 18 25
7 21 31
8 24 38
9 27 46
10 30 55

Complete the table and answer the following:

  • Assuming the price of labor is $6 per unit and the price of capital is $12 per unit; compute the total variable costs, the marginal costs, and the average variable costs for the firm.
  • Using the numbers that you calculated above, explain the relationship between the marginal cost and average variable cost. Using the same numbers, explain the “marginal cost” in terms of additional inputs needed to produce a marginal unit of output.
  • If the output price was $62, how many units of output would the firm produce? Explain.

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