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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Question restatement: Given the short-run production function q = 10L, with wage rate w = £10 per unit of labor, determine AVC (average variable cost).

Option a: a. q
To evaluate AVC, we use AVC = VC / q. Variable cost VC = w × L. From q = 10L, we have L = q/10, so VC = 10 × (q/10) = q. Therefore AVC = VC/q = q/q = 1, not q. This option incorrectly identifies AVC as q.

Option b: b. q/10
If someone proposes AVC = q/10, they might be substituting L = q/10 directly into AVC = wL, but that would give AVC = wL / q = (10 × (q/10)) / q = q/q = 1, which still equals 1 when fully simplified. As stated, q/10 does not align with the correct simplification of AVC, so this option is incorrect as a direct AVC value.

Option c: c. 1
This is the correct numerical value. Using q = 10L implies L = q/10. Variable cost VC = wL = 10 × (q/10) = q. Then AVC = VC/q = q/q = 1. Hence AVC equals 1 (in pounds per unit of output).

Option d: d. 10/q
This would correspond to dividing the wage by output, which is not how AVC is defined. Since AVC is VC per unit of output and VC equals q, AVC = q/q = 1, not 10/q. This option misapplies the relationship between wage, labor, and output.

SESS0007_24-25 Mock test (shortened) for Assessment 1

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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