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Answer to other student's solution in 100 words Solution :- Impact on Production and Costs - Current employment: 50 people - Current production: 12,000 vests per month - When hiring one more person (total 51 workers), production increases by 200 vests. - Monthly wage per worker: $1600 The additional production per month will be 200 vests when they hire the 51st person. This increase in production is the marginal product of labor (MPL) for the 51st worker. 2. Average Variable Cost (AVC) Average Variable Cost (AVC) is calculated as Total Variable Cost (TVC) divided by the quantity produced. The TVC is also concerned with labour costs, since labor has been the sole variable factor for production in this scenario. Hiring an additional worker increases the total variable cost (TVC) by $1600 (the wage of one worker). ·AVC = TVC / Quantity We need to know the relationship between TVC and volume in order to determine the impact on AV. AVC will be dependent on how these changes affect each other, given that TVC is increased by $1600 and the quantity of vests increasing by 200. If the additional 200 vests produced by hiring the 51st worker lower the AVC (because the increase in quantity outpaces the increase in TVC), then AVC will fall. Conversely, if the increase in TVC is not outweighed by an increase in volume, AVC will be increased. 3.Marginal Cost Marginal Cost is the cost of producing one additional unit of output. When the 52nd worker is added: Marginal Product of Labordrops to 160 vests per month. This means the 52nd worker contributes 160 additional vests per month, compared to the 51st worker who contributed 200 vests. Changes in production and costs have an impact on the margin. With a decrease in the number of MPL vests to 160: - The additional cost of hiring the 52nd worker ($1600) divided by the decrease in output (40 vests, because from 200 vests to 160 vests) determines the change in MC. The MC will increase if the decrease in production per worker is not offset by a reduction in costs. This is due to the fact that each additional worker makes a smaller contribution to production, which leads to an increase in productivity.

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