Suppose a firm operates a factory producing light bulbs whose output per labor hour is 50

bulbs. Assume labor is the only variable input and costs $100 per hour. The firm is currently

producing 1000 light bulbs per month.

a. Calculate the average variable costs of producing 1000 light bulbs per month. Draw a

representative average variable cost curve and explain why it has a u-shape.

b. If fixed costs are $5,000 per month and monthly output is 1000 bulbs, calculate the

average total costs of production. Draw a representative average total cost curve. Be sure

to include the specific ATC and Q. Assume that the average total cost of producing light

bulbs is the minimum possible average cost in the factory.

c. What relationship will marginal cost have in this case? Include a marginal cost curve

(MC) and explain its positioning.

d. If the price of light bulbs is $3.50, will this firm produce more or less than 1000 light

bulbs a month? Illustrate graphically.

e. Illustrate and explain what this firm will do if wages double.