Suppose the short-run production function is [math: q=10L] , if the wage rate is £10 perunit of labour, then AVC equals:

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BlackTom AI · Accepted Answer

To tackle this, I’ll start by restating the setup and the relevant definitions. The short-run production function is q = 10L, and the wage rate is w = £10 per unit of labour. We want AVC, which is variable cost divided by output: AVC = VC / q.

Option a: 'q'. If AVC were q, that would imply VC = q^2, since AVC = VC/q. But with the given technology, VC = wL and L = q/10, so VC = 10 · (q/10) = q. Therefore AVC = VC/q = q/q = 1, not q. So option a is incorrect.

Option b: '1'. This matches the calculation above: VC = q, hence AVC = VC/q = q/q = 1. Therefore this option is correct.

Option c: 'q/10'. If AVC were q/10, then VC would be (q/10) · q = q^2/10, which would imply VC grows as the square of output, contradicting VC = wL with L = q/10. Since we know VC = q, AVC cannot be q/10. So option c is incorrect.

Option d: '10/q'. If AVC were 10/q, then VC would be (10/q) · q = 10, which would make VC constant at 10 regardless of output, again inconsistent with VC = q when q varies. Thus option d is incorrect.

In summary, using AVC = VC/q with VC = wL and L = q/10 leads to AVC = 1. The other expressions do not align with the derived VC and L relationships for this production function and wage rate.

Suppose the short-run production function is [math: q=10L] , if the wage rate is £10 perunit of labour, then AVC equals:

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